Technological change and the wealth of nations

We discuss a unified theory of directed technological change and technologyadoption that can shed light on the causes of persistent productivity differencesacross countries. In our model, new technologies are designed in advanced countries and diffuse endogenously to less developed countries. Our framework is richenough to highlight three broad reasons for productivity differences: inappropriatetechnologies, policy-induced barriers to technology adoption, and within-countrymisallocations across sectors due to policy distortions. We also discuss the effectsof two aspects of globalization, trade in goods and migration, on the wealth ofnations through their impact on the direction of technical progress. By doing so,we illustrate some of the equalizing and unequalizing forces of globalization.

Both Sides of the Story: Skill-biased Technological Change, Labour Market Frictions, and Endogenous Two-Sided Heterogeneity

This paper presents a stylised framework to examine how skill-biased technological change and labour market frictions affect the relationship between economic expansion and unskilled unemployment. The first part of the analysis focuses on the investment decisions in skill-acquisition and technology adoption activities faced by workers and firms in response to the introduction of an innovative technology. The second part examines how endogenous two-sided heterogeneity in the labour market affects the macroeconomic outcomes in terms of unemployment, technological diffusion, and economic expansion. To conclude, the framework is used to discuss the effects of alternative forms of policy intervention on agents' investment decisions and on the macroeconomic outcomes.

The Impact of Trade on Technology and Skill Upgrading Evidence from Argentina

In the last 20 years, wage inequality has increased in many developing countries. Most research on this topic focuses on two alternative causes: trade or skill-biased technical change. Several empirical studies in both developed and developing countries document increases in skill intensity within all sectors, favoring the technological change explanation over trade. Instead, I present and test a model where bilateral trade liberalization increases exporting revenues inducing more firms to enter the export market and to adopt skilled-biased new technologies. I find that the increase in the relative demand of skilled labor does not come from labor reallocation across sectors or firms but from skill upgrading within firms. Firms that upgrade technology faster also upgrade skill faster. Finally, firms entering the export market after liberalization become more skill and technology-intensive than non exporters.

Cyclical Skill-Biased Technological Change

Over the past two decades, technological progress has been biased towards making skilled labor more productive. The evidence for this finding is based on the persistent parallel increase in the skill premium and the supply of skilled workers. What are the implications of skill-biased technological change for the business cycle? To answer this question, we use the CPS outgoing rotation groups to construct quarterly series for the price and quantity of skill. The unconditional correlation of the skill premium with the cycle is zero. However, using a structural VAR with long run restrictions, we find that technology shocks substantially increase the premium. Investment-specific technology shocks are not skill-biased and our findings suggest that capital and skill are (mildly) substitutable in aggregate production.

Offshoring and directed technical change

To study the short-run and long-run implications on wage inequality, we introducedirected technical change into a Ricardian model of offshoring. A unique final good isproduced by combining a skilled and an unskilled product, each produced from a continuumof intermediates (tasks). Some of these tasks can be transferred from a skill-abundant Westto a skill-scarce East. Profit maximization determines both the extent of offshoring andtechnological progress. Offshoring induces skill-biased technical change because it increasesthe relative price of skill-intensive products and induces technical change favoring unskilledworkers because it expands the market size for technologies complementing unskilled labor.In the empirically more relevant case, starting from low levels, an increase in offshoringopportunities triggers a transition with falling real wages for unskilled workers in the West,skill-biased technical change and rising skill premia worldwide. However, when the extentof offshoring becomes sufficiently large, further increases in offshoring induce technicalchange now biased in favor of unskilled labor because offshoring closes the gap betweenunskilled wages in the West and the East, thus limiting the power of the price effectfueling skill-biased technical change. The unequalizing impact of offshoring is thus greatestat the beginning. Transitional dynamics reveal that offshoring and technical change aresubstitutes in the short run but complements in the long run. Finally, though offshoringimproves the welfare of workers in the East, it may benefit or harm unskilled workers inthe West depending on elasticities and the equilibrium growth rate.

Skill-biased technological change and the business cycle

Over the past two decades, technological progress in the United States hasbeen biased towards skilled labor. What does this imply for business cycles?We construct a quarterly skill premium from the CPS and use it to identifyskill-biased technology shocks in a VAR with long-run restrictions. Hours fallin response to skill-biased technology shocks, indicating that at least part of thetechnology-induced fall in total hours is due to a compositional shift in labordemand. Skill-biased technology shocks have no effect on the relative price ofinvestment, suggesting that capital and skill are not complementary in aggregateproduction.

Upgrading or polarization? occupational change in Britain, Germany, Spain and Switzerland, 1990-2008

This paper analyzes the pattern of occupational change in four Western European countries over the last two decades: what kind of jobs have been expanding -- high-paid jobs, low-paid jobs or both? By addressing this issue, we also examine what theoretical account is consistent with the observed pattern of change: skill-biased technical change, skill supply evolution or wage-setting institutions? Our empirical findings show a picture of massive occupational upgrading that closely matches educational expansion. In all four countries, by far the strongest employment growth occurred at the top of the occupational hierarchy, among managers and professionals. Yet in parallel, in Britain and Switzerland, as well as in Germany and Spain after 1996 and 2002 respectively, relative employment declined more strongly in the middling occupations (among clerks and production workers) than at the bottom (among interpersonal service workers). This slightly polarized pattern of occupational upgrading is consistent with the "routinization" hypothesis that technology is a better substitute for average-paid jobs in production and the office that for low-paid jobs in interpersonal services. However, we find large cross-country differences in the employment evolution at the bottom of the occupational hierarchy, among low-paid services workers: sizeable growth in Britain and Spain, but stagnation in Germany and Switzerland. This results points towards the possibility that wage-setting institutions filter the pattern of occupational change.

Increasing returns, imperfect competition and factor prices

We show how, in general equilibrium models featuring increasing returns, imperfectcompetition and endogenous markups, changes in the scale of economic activity affectincome distribution across factors. Whenever final goods are gross-substitutes (gross-complements), a scale expansion raises (lowers) the relative reward of the scarce factoror the factor used intensively in the sector characterized by a higher degree of product differentiation and higher fixed costs. Under very reasonable hypothesis, our theory suggests that scale is skill-biased. This result provides a microfoundation for the secular increase in the relative demand for skilled labor. Moreover, it constitutes an important link among major explanations for the rise in wage inequality: skill-biased technical change, capital-skill complementarities and international trade. We provide new evidence on the mechanism underlying the skill bias of scale.

Extending the Kuznets Curve

[cat] Les darreres dècades s’han caracteritzat per un intens augment de les desigualtats salarials a nivell mundial. Aquest article allarga la hipòtesi clàssica de la Corba de Kuznets per cobrir les economies post-industrials i tractar d’explicar aquest fenomen. Segons la hipòtesi de la Corba de Kuznets Allargada, les desigualtats salarials podrien evolucionar segons una corba en forma d’N. La U-inverida d’aquesta corba seria deguda al procés de canvi estructural que acompanya a un procés de industrialització. I l’extrem dret de la mateixa, associada al creixement explosiu de la formació de capital humà en les economies modernes i post-industrials. En aquest sentit, els principals candidats per explicar el recent augment de les desigualtats: el canvi tècnic esbiaixat a favor del treball qualificat, la globalització (comerç i migracions) i els factors institucionals, estarien ja incorporats en l’evolució de la composició de la força de treball en termes de qualificacions. La limitada evidència empírica sobre aquest tema, tendeix a donar suport a la Corba de Kuznets Allargada.

Extending the Kuznets Curve

[cat] Les darreres dècades s’han caracteritzat per un intens augment de les desigualtats salarials a nivell mundial. Aquest article allarga la hipòtesi clàssica de la Corba de Kuznets per cobrir les economies post-industrials i tractar d’explicar aquest fenomen. Segons la hipòtesi de la Corba de Kuznets Allargada, les desigualtats salarials podrien evolucionar segons una corba en forma d’N. La U-inverida d’aquesta corba seria deguda al procés de canvi estructural que acompanya a un procés de industrialització. I l’extrem dret de la mateixa, associada al creixement explosiu de la formació de capital humà en les economies modernes i post-industrials. En aquest sentit, els principals candidats per explicar el recent augment de les desigualtats: el canvi tècnic esbiaixat a favor del treball qualificat, la globalització (comerç i migracions) i els factors institucionals, estarien ja incorporats en l’evolució de la composició de la força de treball en termes de qualificacions. La limitada evidència empírica sobre aquest tema, tendeix a donar suport a la Corba de Kuznets Allargada.

Structural development accounting

We construct and estimate a unified model combining three of the main sources ofcross-country income disparities: differences in factor endowments, barriers to technologyadoption and the inappropriateness of frontier technologies to local conditions. The keycomponents are different types of workers, distortions to capital accumulation, directedtechnical change, costly adoption and spillovers from the world technology frontier. Despiteits parsimonious parametrization, our empirical model provides a good fit of GDP data forup to 86 countries in 1970 and 122 countries in 2000. Removing barriers to technologyadoption would increase the output per worker of the average non-OECD country relativeto the US from 0.19 to 0.61, while increasing skill premia in all countries. Removing barriersto trade in goods amplifies income disparities, induces skill-biased technology adoptionand increases skill premia in the majority of countries. These results are reverted if tradeliberalization is coupled with international IPR protection.

Technology diffusion and its effects on social inequalities

We develop a dynamic general-equilibrium framework in which growth is driven by skill-biased technology diffusion. The model incorporates leisure–labor decisions and human capital accumulation through education. We are able to reproduce the trends in income inequality and labor and skills supplies observed in the United States between 1969 and 1996. The paper also provides an explanation for why more individuals invest in human capital when the investment premium is going down, and why the skill-premium goes up when the skills supply is increasing.

Service offshoring and the skill composition of labor demand

This paper studies the effects of service offshoring on the skill composition of labor demand, using novel comparable data for nine Western European countries between 1990 and 2004. The empirical analysis delivers three main results. First, service offshoring is skill-biased, because it increases the demand for high and medium skilled labor and decreases the demand for low skilled labor. Second, the effects of service offshoring are similar to those of material offshoring, both qualitatively and quantitatively. Third, the economic magnitude of these effects is not large.

A tractable means of correcting sector level TFP calculations in the face of biased technological change.

The measurement of the impact of technical change has received significant attention within the economics literature. One popular method of quantifying the impact of technical change is the use of growth accounting index numbers. However, in a recent article Nelson and Pack (1999) criticise the use of such index numbers in situations where technical change is likely to be biased in favour of one or other inputs. In particular they criticise the common approach of applying observed cost shares, as proxies for partial output elasticities, to weight the change in quantities which they claim is only valid under Hicks neutrality. Recent advances in the measurement of product and factor biases of technical change developed by Balcombe et al (2000) provide a relatively straight-forward means of correcting product and factor shares in the face of biased technical progress. This paper demonstrates the correction of both revenue and cost shares used in the construction of a TFP index for UK agriculture over the period 1953 to 2000 using both revenue and cost function share equations appended with stochastic latent variables to capture the bias effect. Technical progress is shown to be biased between both individual input and output groups. Output and input quantity aggregates are then constructed using both observed and corrected share weights and the resulting TFPs are compared. There does appear to be some significant bias in TFP if the effect of biased technical progress is not taken into account when constructing the weights

The contribution of supply and demand shifts to earnings inequality in urban China

This paper examines the degree to which supply and demand shift across skill groups contributed to the earnings inequality increase in urban China from 1988 to 2002. Product demand shift contributed to an equalizing of earnings distribution in urban China from 1988 to 1995 by increasing the relative product for the low educated. However, it contributed to enlarging inequality from 1995 to 2002 by increasing the relative demand for the highly educated. Relative demand was continuously higher for workers in the coastal region and contributed to a raising of interregional inequality. Supply shift contributed essentially nothing or contributed only slightly to a reduction in inequality. Remaining factors, the largest disequalizer, may contain skill-biased technological and institutional changes, and unobserved supply shift effects due to increasing numbers of migrant workers.