Openness, Wage Floors and Technology Change
Journal
The B.E. Journal of Macroeconomics
ISSN
1555-0486
ISSN-Digital
1935-1690
Type
journal article
Date Issued
2007-01-23
Author(s)
Abstract
This paper argues that the effect of openness to trade on process innovations and skill premia importantly depends on the structure of labor markets in developed countries. Openness to trade with less developed countries is often modelled as a fall in the relative price of unskilled-labor intensive goods. We show within the model of Acemoglu (2003b) that such a fall in the relative price can make wage floors more binding and trigger costly process innovations that increase the productivity of unskilled workers. Empirical evidence using an industry panel for the US and Germany in the 1970s to 1990s supports this hypothesis: (i) embodied technology change seems distorted towards unskilled-labor intensive industries in Germany where wage floors are more important and (ii) embodied technology change in the 1980s is associated with an increase of the share of skilled labor in the wage bill of 15 percentage points in the US whereas the corresponding increase in Germany is much smaller at 3 percentage points.
Language
English
Keywords
Openness
Wage Floors
Technology Change
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Refereed
Yes
Publisher
De Gruyter
Publisher place
Berlin
Volume
7
Number
1
Start page
1
End page
26
Pages
26
Subject(s)
Eprints ID
235067