R&D innovation, industrial evolution and the labor skill structure in China manufacturing

Abstract

This paper utilizes the skill-biased technological change and routine-biased technological change hypotheses, along with the theory of firms' innovation behavior, to establish a comprehensive analytical framework. This framework aims to elucidate the mechanisms through which technological innovation, industrial evolution, and education affect the labor skill structure in China manufacturing. The empirical results that have been gathered can be succinctly described in the following manner: (1) Research and development innovation stimulates the demand for high-and low-skilled labor, and, the rising of total factor productivity reduces the demand for low-skilled labor, confirming the labor-friendly effect of product innovation and the labor-saving effect of process innovation. (2) The cyclical pattern of fluctuating demand for low-skilled labor can be attributed to the industrial concentration, driven by technological advancements. Nevertheless, the phenomenon of cyclicality has not been observed for high-skilled labor. (3) There exists a paradoxical relationship between higher education and industrial demand, wherein education and skill are mismatched. (4) There exists the SBTC in China manufacturing resulted from process innovation. However, the SBTC does not explain the cause or mechanism behind the relative productivity shift and the higher demand for educated workers. This paper examines several policy implications including R&D innovation, employment, and education.