Biased Technical Change Research Articles

Biased Technical Change, Factor Substitution, and Carbon Emissions Efficiency in China

This paper investigates the effect of biased technical change on total factor carbon emissions efficiency in China using provincial panel data from 2001–2014. It evaluates each province’s total factor carbon emissions efficiency by a two-stage super-efficiency Data Envelopment Analysis (DEA) model, and measures technical change bias in the framework of time-varying elasticity production function. Then, the impact of technical change’s capital–energy bias on carbon emissions efficiency is estimated by the fixed-effect panel and dynamic panel model. This study has the following findings: First, China’s total factor carbon emissions efficiency still has a long way to go. Carbon emissions efficiency varies a lot across regions. The eastern area boasts the highest carbon emissions efficiency. Second, China’s current technical change is energy-biased, and the marginal production growth rate presents energy>capital>labor, but the gap between energy and capital is diminishing. Third, technical change’s increasing capital bias helps to improve China’s carbon emissions efficiency substantially. The mechanism behind this is the changing factor substitution elasticity in the industry upgrade process.

Output and input bias effects of U.S. direct payments

AbstractThis study examines the national effect of U.S. direct payments on the extent and direction of biased technical change on U.S. agriculture. We also assess the economic significance of the estimated bias effects for economic policy modeling endeavors involving a reduction of domestic support payments. A two outputs (livestock and crops) and four inputs (labor, capital, land, and material) translog cost function was estimated from national time series (1948–2011) data. Results indicate that payments do not induce output‐biased technical change. We do find evidence of Hicksian bias that is land using and material input saving attributable to support payments. Global computable general equilibrium simulations suggest that price and output effects of discontinuing direct payments are 1/4 to 1/3 the size once the bias effects are incorporated.

Skill Biased Technical Change and Misallocation: A Unified Framework

Due to strict reliance on competitive labor markets, standard approaches which measure skill biased technical change (SBTC) conflate labor market distortions which prevent firms from choosing the efficient ratio between skilled and unskilled labor and `true' SBTC. This contrasts with recent evidence on decoupling between wages and productivity. To overcome this limitation, we present a unified framework to estimate SBTC which accounts for factor accumulation (FA) effects, and quantifies the discrepancy (i.e., relative misallocation) between the wage ratio (skilled to unskilled) and the marginal rate of technical substitution (MRTS). The suggested methodology takes advantage of recent developments in nonparametric estimation methods (i.e., discrete smoothing) that allow us to estimate the marginal productivity of inputs at the country-sector level directly from data. Over the 1995-2005 period, we find a 3\% yearly growth rate for the MRTS between skilled and unskilled labor and show such change to be almost entirely driven by SBTC, rather than FA, on average. In most cases, SBTC and MRTS growth do not come with increasing skill premia; this fosters the decoupling and results in relative misallocation patterns (across countries and sectors) which are quite heterogeneous, for which we report a 6\% overall increase. Finally, we show evidence that relative misallocation increased less in country-sectors in which it was larger at the beginning of the period and grew more in country-sectors characterized by: (a) higher skill-intensity; (b) lower bargaining power of skilled over unskilled workers; and (c) lower FA effects.

Directed Technical Change, Capital Intensity Increase and Energy Transition: Evidence from China

This paper analyses the causes of China’s energy transition since the economic reform policy launched in 1978. We propose a conceptual framework to determine if increasing capital intensity (capital deepening) of the Chinese economy is driving a shift in the energy mix towards modern energy sources due to technical change biases to capital. The empirical investigation is based on national level time series data from 1978 to 2015. The results of a Granger causality test show that increasing capital intensity causes transition to modern energy in the long run, but not vice versa. The impulse-response analysis, based on Johansen cointegration modelling and vector error-correction model (VECM), verifies that capital intensity determines energy transition in the long run and the adjustment period to the exogenous shock from capital deepening is around five years. This is in line with China’s National Five-year Plans, which often introduce major shifts in energy and industrial policy. We conclude that China’s energy transition is driven by capital deepening and the biased technical change towards capital-intensive modern energy in the long run. The rate of change can be spurred on by exogenous investment shocks partly as a result of policy initiatives as part of the China’s Five-year Plans.

Skilling and deskilling: technological change in classical economic theory and its empirical evidence

This article reviews and brings together two literatures: classical political economists’ views on the skilling or deskilling nature of technological change in England, during the eighteenth and nineteenth centuries when they wrote, are compared with the empirical evidence about the skill effects of technological change that emerges from studies of economic historians. In both literatures, we look at both the skill impacts of technological change and at the “inducement mechanisms” that are envisaged for the introduction of new technologies. Adam Smith and Karl Marx both regarded the deskilling of the labour force as the predominant form of biased technical change, but other authors such as Charles Babbage also took account of capital-skill complementarities and skill-enhancing effects of technological change. For Smith, the deskilling bias was an unintended by-product of the increasing division of labour, which in his view “naturally” led to ever more simplification of workers’ tasks. As opposed to Smith, Marx considered unskilled-biased technical change as a bourgeois weapon in the class struggle for impairing the workers’ bargaining position. Studies of economic historians lend support to Marx’s hypothesis about the inducement mechanisms for the introduction of unskilled-biased innovations, but have produced no clear-cut empirical evidence for a deskilling tendency of eighteenth- and nineteenth-century technological change as a whole. Industrialization in the eighteenth and nineteenth centuries rather led to labour polarization, by simultaneously deskilling a large part of the workforce and raising the demand for some (but fewer) high-skilled workers.

Variable markups and capital-labor substitution

We provide new estimates of the elasticity of capital-labor substitution (σ) and the bias in technical change allowing price markups to change over time as shown in De Loecker and Eeckhout (2017). Our estimate of σ is in the region of 0.8 and technical change is net capital-augmenting.

Under the Rising Wave. How Disaggregated Revenue Sources Can Tell Another Story for Québec’s Top Income Share

Top income investigations usually rely on types of earnings that remain at a tively aggregated level. Using a novel disaggregated dataset for Québec’s top earners, we map the recent evolution of different types of income for the top one percent. Hidden under the steady increase of the top income share, we find that there has been very divergent and sharp rises of different revenue sources at specific moments. When looking at disaggregated data, composition effects and historical counterfactuals in Québec invalidate market-based theories like globalization and skilled biased technical change, but not institution-based theories like financialization, taxation and union strength.

The Demand for Inputs and Technical Change in the U.S. Dairy Manufacturing Industry

The dairy industry is of much interest worldwide because it has been subject to heavy government intervention. Central to the analysis of any dairy policy is a quantitative empirical understanding of the economic relationships in the industry. This paper models and measures the input demand relationships—especially, derived demand for farm milk as a processing input—and the rate and biases of technical change in the U.S. dairy manufacturing industry. Our estimates indicate that the Marshallian own-price elasticity of demand for farm milk is between −0.43 and −1.20. Estimates also indicate that technical change has been capital using and labor saving.

What Determines the Adoption of Technologies for Renewable Energy Generation Across Countries?

I provide evidence about the effects of induced biased technical change as a main determinant of solar and wind energies adoption. This study presents an empirical framework based on an input demand function for electricity production. Implementing this model helps us to understand what is driving the decision of electricity generators to adopt solar and wind energies. The data used for this study was a cross country panel dataset on 29 OECD countries between 1990 and 2015. I test three mechanisms that may be driving the adoption of these technologies: 1) a pure substitution effect between renewable energies and fuel; 2) induced technological change and innovation; 3) fuel taxes. The results show that induced technical change is the main driver to increase the rate of adoption of solar and wind energies.

Capital-labor substitution, structural change and the labor income share

Recent work has documented declines in the labor income share in the United States and beyond. This paper documents that this decline was more pronounced in manufacturing than in services in the U.S. and in a broad set of other industrialized economies, and shows that a model with cross-sectoral differences in productivity growth and in the degree of capital-labor substitutability is consistent with these trends. We calibrate the model exploiting additional information on the pace of structural change from manufacturing to services, on which the model also has predictions. We then conduct a decomposition to establish the relative importance of several potential drivers of changes in factor income shares and structural change that have been proposed in the literature. This exercise reveals that differences in the degree of capital bias of technical change across sectors, combined with differences in substitution possibilities, are key determinants of the observed patterns.

Energy-biased technical change in the Chinese industrial sector with CES production functions

We develop a theoretical framework to study energy-biased technical change considering capital, labor and energy as inputs. The framework involves a first order condition estimation of elasticity and technical change parameters for a three factor-nested Constant Elasticity of Substitution (CES) function. Technical change parameters, elasticities and time derivatives of marginal products are combined to compute technical change bias. Conceptually, we introduce total bias in order to estimate the direction without requiring a direct comparison with another factor. For Chinese industries from 1990 to 2012, the optimal structure is capital and energy to be combined at the composite level and then with labor to form total output. Technical change is found to be unambiguously energy biased, it increases in every year, and the bias is predominately away from labor. The results show that Chinese industrialization was fuelled by fossil fuels and energy-intensive technologies. Nonetheless, the growth rate of energy-biased technical change decreased during the 2000s that may result from more energy efficient development.

Research and development and labour productivity: do high-tech firms exhibit labour- or capital-saving technical change?

ABSTRACTEmployment and output in the advanced technology sectors have generally exhibited above-average growth for more than two decades. While this industry accounts for a relatively small share of total employment, the majority of private sector research and development (R&D) expenditures in the US is concentrated within seven sub-sectors. However, little attention has been paid as to whether high-tech productivity exhibits Hicksian capital or labour ‘savings’ bias or tendency to displace either factor input over time. Biased technical change can occur as economies transition between growth regimes. An augmented production function is employed to analyse the additional impact of R&D activity on firm-level labour productivity. A panel data set comprised of high-tech firms located across the advanced economies, China and India from 1990 to 2013 is used in the analysis. Labour-saving technical change was present across the advanced technology sectors and most countries. The expanded models of labour productivity that used fixed effects with lagged regressors confirmed the prior results as well as finding that R&D per employee, relative R&D intensity and firm market share contribute to firm-level labour productivity growth across countries and sectors. Additional support was found for diminishing returns to scale but not for R&D spillover effects.

Workforce Education and Technical Change Bias in U.S. Agriculture and Related Industries

The number of hours devoted to value added output in the North American Industry Classification System (NAICS) sector “Agriculture, Forestry, Fishing, and Hunting” is increasingly supplied by individuals with advanced schooling. Consistent with hypotheses of a positive relationship among technology development, adoption, and dissemination and a more highly‐skilled workforce, we first test and then conclude that the composition of the workforce is closely aligned with measures of the state of technology. Consistent with many other studies, technical change has been labor‐saving overall, yet technologies adopted have reduced both the absolute and relative numbers of workers not progressing beyond high school. The changing composition of the workforce and technical change have driven an average wedge of 31% between reported wages and wages augmented by our estimates of the state of technology. This gap was greater in the period prior to the mid 1980s, when many of the changes in the education levels of the labor force occurred. Using estimates from the entire 1947–2010 period, the quantity of work provided by the worker hired in 2010 was 31% greater than if no change in labor composition had occurred.

Structural change and non-constant biased technical change

AbstractEmpirical evidence suggests that the differences in rates of technical progress across sectors are time-variant, implying that the bias in technological change is not constant. In this paper, we analyze the implications of this non-constant sectoral biased technical change for structural change and we assess whether this is an important factor behind structural transformations. To this end, we develop a multi-sectoral growth model where TFP growth rates across sectors are non-constant. We calibrate our model to match the development of the U.S. economy during the twentieth century. Our findings show that, by assuming non-constant biased technical change, a purely technological approach is able to replicate the sectoral transformations in the U.S. economy not only after but also prior to World War II.

Estimating the bias in technical change: A nonparametric approach

In this note we propose a nonparametric methodology to estimate the bias in technical change. We apply the model to estimate the direction of technical progress for a sample of 81 countries covering the period 1970–2014. Our results confirm previous findings that during the 1980s technical change in industrialized countries has become increasingly capital-using. Moreover, we find that patterns in the bias of technical change have converged among different country groups after the productive decade 1995–2004.

Estimating Malmquist productivity indexes using probabilistic directional distances: An application to the European banking sector

Our paper by adopting the latest advances on the probabilistic characterization of directional distance functions as has been introduced by Daraio and Simar (2014), develops a Malmquist productivity index and presents its main decompositions. Specifically, the proposed productivity index is based on the probabilistic version of directional distance functions which are expressed as transformations of radial distances. We illustrate how these indexes can be computed and how different components can be derived. Specifically, we demonstrate how a probabilistic version of the following categories of change can be obtained: technical, efficiency, pure efficiency, scale efficiency, scale change factor and scale bias of technical change. Finally, we apply the probabilistic productivity indexes alongside with their decompositions to inputs/outputs data from a sample of 644 banks from 28 European countries between the years 2007, 2010 and 2014. The results suggest that the EU banks’ productivity levels remained relative unchanged from the initiation of U.S. prime crisis and during the EU sovereign debt crisis. Finally, during the U.S. prime crisis and the Global Financial Crisis, banks’ maintained their productivity levels by utilizing better their inputs and by exploiting scale economies. However, during the sovereign debt crisis banks maintained their productivity levels by investing on financial engineering competences.

Energy biased technology change: Focused on Chinese energy-intensive industries

Technical change bias has predominately been measured through two-factor models. Resulting from the rising importance of energy we devised a framework to estimate technical change bias for three input factors. The framework involves an estimation of elasticity and technical change parameters for a constant elasticity of substitution function with capital, labour and energy, which is derived from the elasticities and marginal output. We apply the framework to investigate eleven Chinese energy-intensive industries. The optimal nested structure for eight of the industries is for capital and energy to be combined first at the composite level and then with labour to form total output. Between 1990 and 2012, six of the industries were energy biased, three were towards capital, one towards labour and one mixed. The results show that recent Chinese energy intensity reduction programs are not sufficient to induce energy efficient development. The policy recommendations target specifically the energy biased industries to achieve desired energy savings in the future.

Economic Retirement Age and Lifelong Learning - A Theoretical Model with Heterogeneous Labor, Biased Technical Change and International Sourcing

The employability of an aging population in a world of continuous and biased technical change is top of the political agenda. Due to endogenous human capital depreciation the effective retirement age is often below statutory retirement age resulting in permanent non-employability of older workers. We analyze this phenomenon in a putty-putty human capital vintage model and focus on education and the speed of human capital depreciation. Introducing a two-stage education system with initial schooling and lifelong learning, not even lifelong learning turns out to be capable of aligning economic and statutory retirement. However, well designed education programs will keep more workers in highly productive activities at the end of their working life, and hence will substitute for simple social transfers, or for an early switch towards very low paid jobs.

Structural Transformation, Biased Technological Change and Employment in Vietnam

Employment in Vietnam and elsewhere in Asia has grown more slowly than GDP over the last several decades. This means GDP per capita is rising. Vietnamese policymakers, however, are concerned that ongoing structural transformation is creating too few jobs. We use data for seven aggregated sectors and the overall Vietnamese economy to examine the roles played by structural transformation, technical change and institutional bias towards capital-intensive development to evaluate the Vietnamese development experience. We find that while some of the difference between GDP and employment growth can be attributed to capital-intensive investment by the state, the majority of the difference is because of technical change. A positive rather than pessimistic overall assessment is warranted based on the available evidence.

The endogenous skill bias of technical change and wage inequality in developing countries

ABSTRACTThis paper draws on existing empirical literature and an original theoretical model to argue that technical change does not have to be skill-biased in developing countries. Instead, the extent to which technology adoption in developing countries favors skilled workers depends on a number of factors. Free trade induces technology that favors skilled workers in skill-abundant developing countries and that favors unskilled workers in skill-scarce developing countries, and therefore amplifies the predicted wage effects of trade liberalization. Developing countries experience technical change that is skill-biased when imported skill-biased technologies become relatively cheaper. Increased skill supply further biases technical change in favor of skilled labor. These features aid our understanding of the observed rises in inequality within developing countries, the absence of a significant downward effect of expanded educational attainment on skill premia, and the differential effects of trade liberalization on inequality.