Knowledge Spillovers and Wage Inequality: An Empirical Analysis of Dutch Manufacturing

Abstract

The introduction of new technologies and technical change is associated mainly with high‐skilled and high‐wage workers. In addition, many studies have found a positive correlation between the introduction of new technologies and technical change and skill upgrading. In these studies no attention has been paid to spillovers from one sector to the other. In this paper we not only use measures of technical change but also knowledge spillovers to explain wage inequality in Dutch manufacturing in the period 1986–95. Using this more elaborate measure of technical change, our findings are twofold. First, we confirm that workers employed in knowledge‐intensive manufacturing sectors receive a higher wage than workers in less knowledge‐intensive sectors. Secondly, the wages paid to high‐skilled workers relative to low‐skilled workers in knowledge‐intensive sectors are higher than those in less knowledge‐intensive sectors. However, the coefficients using the elaborate measure of technological advancement are much lower and sometimes even insignificant. This suggests a premium for high‐skilled labour in sectors both applying and developing technology. But the wage premium is highest in technology‐developing sectors, as suggested by the measures used in previous studies.