The clearest case by which to demonstrate both the initial impact and the structural adjustments required for compensation is a pure labor-displacing innovation introduced in the consumer-good sector. More precisely, a capital stock equal to the original one in terms of wage units can now produce the original output with less labor input, because either the given physical stock is more efficiently organized or a new more efficient stock was built after the original stock was fully depreciated. The displacement effect is unambiguous, as is the need for additional capital formation so long as the displaced workers are supposed to be absorbed in industrial production. Subsequently, we shall also examine the effect of pure labor-displacing innovations occurring in one or the other of the equipment-good sectors. We are already prepared for additional complications that will then arise because of the secondary effect of this type of change on the price of capital inputs in the consumer-good sector.

Our main task is to study the effect of pure labor-displacing innovations on a system in dynamic equilibrium. However, once again it will prove useful to start out from a stationary frame of reference. We then assume that in some firm(s) belonging to a particular industry in the consumer-good sector, production will be reorganized in such a manner that the available stock of secondary equipment can produce the original output quantity with a smaller input of labor.