Skill-biased Technical Change Research Articles

Does digital transformation promote global value chain upgrading? Evidence from Chinese manufacturing firms

Enterprises in developing countries previously entered the lower end of the global value chain (GVC) by leveraging low-cost production factors. Digital transformation offers these enterprises opportunities to move upstream in the GVC. While the literature highlights the benefits of digital technology in enhancing innovation, productivity, and resource utilization, comparatively limited exploration of the relationship between digital transformation and GVC upgrading has occurred. We utilize data on Chinese listed manufacturing firms from 2007 to 2016 to investigate the impact of digital transformation on their positioning in the GVC. The results show that digital transformation significantly enhances manufacturing firms' positions in the GVC, with skill-biased technical change playing a positive role. Our findings indicate the significance of digitalization and talent-management strategies for firms aiming to capture greater value in the GVC.

Democratizing effects of digital ledger technologies: Implications for economic mobility

There is a large body of empirical and theoretical literature on the effects of technological change on individuals, labor markets, and overall economic activity. Theories of skill-biased technical change (SBTC) suggest that technology increases the earnings power of skilled workers, but substitutes for less skilled workers. Distributed ledger technologies (DLTs) provide a new context for examining and understanding the impact of technology change on labor, competition, and economic outcomes. This paper explores the theoretical frameworks through which DLTs could enhance economic mobility and provides examples from several areas, including: i) the creation of new jobs and higher value-added jobs, and the modularization of complex tasks; ii) improvements in the way people learn and acquire human capital; iii) increased competition in the marketplace; and iv) more inclusive access to financial services with fewer intermediaries.

Optimal linear income taxes and education subsidies under skill-biased technical change

AbstractThis paper studies how linear tax and education policy should optimally respond to skill-biased technical change (SBTC). SBTC affects optimal taxes and subsidies by changing (1) direct distributional benefits of each policy instrument, (2) indirect, general-equilibrium effects on wages, and (3) education distortions. Analytically, the effect of SBTC on these three components is shown to be ambiguous. In simulations for the US economy, SBTC makes the optimal tax system more progressive and lowers optimal education subsidies. This is because for both income taxes and education subsidies; their direct distributional effects become more important, which more than offsets the larger general-equilibrium effects and increased education distortions.

Labour market effects of wage inequality and skill-biased technical change

ABSTRACT This paper analyses the effects of wage inequality on labour market development. Relevant theories are ambiguous, just as public debates. We measure the effects of inequality, skill-biased and skill-neutral technical change on hours, productivity and wages in a novel structural vector error correction framework identified by economically motivated long-run restrictions. The results show that structural inequality shocks have a negative impact on hours, productivity and wages. These effects are particularly pronounced at high inequality levels and for inequality below the median wage. Skill-biased technology shocks reduce – unlike skill-neutral ones – hours but increase inequality, productivity and wages.

The Impact of Trade Liberalization on Income Inequality: Does the Direction of Trade Matter?

Recent trends in inequality have raised concerns among researchers and policymakers globally. The role of globalization, one of the leading forces driving this trend, continues to be intensely debated in academic and policy circles. Invoking standard trade theory, this paper analyses whether and the extent to which trade liberalization has contributed to the recent trends in inequality. The approach and findings of the paper are novel: previous studies of trade liberalization’s impact on inequality do not explicitly control the direction of trade. The empirical results show that trade liberalization is associated with decreasing income inequality overall, but contingent on the direction of trade, it has opposing effects: North–North and South–South trade are inequality-reducing while North–South trade is inequality-increasing. Simply put, liberalizing trade between countries of similar developmental levels does not raise inequality. This paper affirms, using recent data, that trade with developing countries raises inequality in developed countries. Additionally, it finds that North–South trade (particularly imports from high-income to low-income countries) may also raise inequality in developing countries, contrary to Heckscher–Ohlin–Stolper–Samuelson model predictions. Skill-biased technical change, a consequence of trade liberalization between North and South, is the main mechanism driving inequality increases in developing countries.

Automation, Job Polarisation, and Structural Change

The increasing automation of tasks traditionally performed by labour is reshaping the relationship between skills and tasks of workers, unevenly affecting labour demand for low, middle, and high-skill occupations. To investigate the economy-wide response to automation, we designed a multisector Agent-Based Macroeconomic model accounting for workers’ heterogeneity in skills and tasks. The model features endogenous skill-biased technical change, and heterogeneous consumption preferences for goods and personal services across workers of different skill types. Following available empirical evidence, we model automation as a manufacturing-specific, productivity-enhancing, and skill-biased technological process. We show how automation can trigger a structural change process from manufactory to personal services, which eventually increases the share of high and low-skilled occupations, while reducing the share of middle-skilled ones. Following the literature, we label this dynamics as job polarisation throughout the paper. Finally, we study how labour market policies can feedback in the model dynamics. In our framework, a minimum wage policy (i) slows down the structural change process, (ii) boosts aggregate productivity, and (iii) accelerates the automation process, strengthening productivity growth within the manufacturing sector.

Skill-biased technical change and labor market inefficiency

The economic literature has so far produced limited (country-level) evidence on the magnitude of skill-biased technical change (SBTC), and has not yet investigated the extent to which, coupled with labor market imperfections, SBTC is associated with inefficient use of labor. We present a novel approach to estimate SBTC allowing for the presence of labor market inefficiency. Using data taken from the World Input-Output Database across 38 countries and 30 sectors, we provide the first country-sector evidence of SBTC during the 1995–2005 period and quantify the extent of economic inefficiency arising from labor market imperfections. On average, we find that the productivity of skilled workers grows by approximately 11.5% more than that of unskilled workers, mostly driven by SBTC (13.7%), rather than factor accumulation (−2.1%). Economic inefficiency decreases by 10.5% on average, and labor market rigidities are more binding in sectors that are more exposed to technological change. Substantial heterogeneity is also observed.

Skill-Biased Technical Change Again? Online Gig Platforms and Local Employment

Skill-Biased Technical Change Again? Online Gig Platforms and Local Employment

Sectoral Heterogeneity, Income Inequality and Productivity Dynamics

An intricate dynamic pattern has been commonly observed in many developed countries during the past decades. This pattern contains a simultaneous rise in the following economic variables: (i) total factor productivity, (ii) educated labor supply, (iii) wage-gap between high- and low-skilled workers, and (iv) income inequality. Typical explanations for the different elements of this pattern assume a skill-biased technical change (SBTC) or capital-skill complementarity. In this study we offer a complementing explanation for these phenomena, which is based on sectoral heterogeneity and endogenous factor mobility, rather than on an SBTC. We show that sectoral heterogeneity can amplify the effects of a technical change, whether skill-biased or general, in a manner that generates the four elements of the above described dynamic pattern. Furthermore, inequality can perform also a Kuznets-curve pattern, as was observed in several countries, in contrast to the inequality dynamics in typical SBTC models.

Wages, Skills, and Skill-Biased Technical Change

The canonical supply-demand model of the wage returns to skill has been extremely influential; however, it has faced several important challenges. Several studies show that the standard approach sometimes produces theoretically wrong-signed elasticities of substitution, yields counterintuitive paths for skill-biased technical change (SBTC), and does not account for the observed deviations in college premia for younger vs. older workers. This paper shows that these failings can be explained by mis-measurement of relative skill prices and supplies (based on standard demographic composition-adjustments) and by inadequate ad hoc functional form assumptions about the path for SBTC. Improved estimates of skill prices and supplies that account for variation in skill across cohorts within narrowly defined groups help explain the observed deviation in the college premium for younger vs. older workers, even with perfect substitutability across age. Re-estimating the model with these prices and supplies produces a good fit with better out-of-sample prediction and robustly yields positive elasticities of substitution between high and low skill workers. The estimates suggest greater substitutability across skill and a more modest role for SBTC. We implement two new approaches to modelling SBTC. First, we study the extent to which recessions induce jumps or trend-adjustments in skill bias and find evidence that both features are important (but differ across recessions). Second, we link SBTC to direct measures of information technology investment expenditures and show that these measures explain the evolution of skill bias quite well. Together, these approaches suggest that the ad hoc assumptions for SBTC previously employed in the literature are too crude to fit the data well, leading to the incorrect conclusion that SBTC slowed during the early-1990s and under-estimates of the elasticity of substitution between high and low skill workers.

Labour market miracle, productivity debacle: Measuring the effects of skill-biased and skill-neutral technical change

This paper examines the role of skill-biased and skill-neutral technical change for productivity and employment. Thereby, we explore the puzzling macro development in Germany, witnessing job miracle and productivity debacle in parallel. In the literature, skill-biased technical change (SBTC) is known as an important driving factor for labour markets. We measure SBTC using comprehensive micro data and construct a structural macroeconometric framework identified by long-run restrictions. The results show that weaker SBTC explains 69 percent of the productivity slowdown since the early 2000s. Skill-biased technology shocks have a negative and skill-neutral technology shocks a positive hours effect. Twenty-five percent of the hours upswing since 2005 can be explained by reduced pressure from SBTC. Moreover, we analyse routine-biased technical change (RBTC) and find productivity and hours effects comparable to SBTC. However, only the latter can explain the job miracle – productivity debacle puzzle, since RBTC does not flatten substantially in the 2000s.

College majors and wages in Turkey: OLS and quantile regression with sample selection correction

PurposeThis study aims to analyze the wage differentials of the majors in college education in Turkey, which is a country implementing an ongoing expansion in college education in recent years.Design/methodology/approachThe study implements Mincreian wage regression using ordinary least squares, Heckman two-step estimation and quantile regression with sample selection correction by using household labor force surveys of TurkStat from the years 2014–2017.FindingsThe findings indicate one of the highest heterogeneity, close to 0.50 log points, between majors in the literature. The within-heterogeneity created by majors is highest among the graduates of social-behavioral sciences, law, biology, physics, mathematics, statistics, computer, engineering and manufacturing, as shown by a 90–10 difference, which is almost 700% for some of these majors. This study shows that the natural science and technical majors that are expected to be more productive and to be paid more fall behind in the wage distribution.Research limitations/implicationsEstimation results show that natural science majors, except for subjects allied to medicine and engineering, are paid lower than law and service-sector-related majors. This indicates that the predictions of the skill-biased technical change hypothesis are not valid in the wage profiles in Turkey and that some majors supply more than the sectoral needs. This casts doubts on the effectiveness of the ongoing higher education expansion process of the country.Originality/valueThis study contributes to the literature on wage differentials of college majors, an area with limited studies. This is the first study analyzing wage differentials of the field of studies by correcting sample selection bias for the Turkish case.

The generative relationship between job quality, innovation, and employment

Recent qualitative and quantitative research on the interrelationships between innovation, job quality and employment shows a strong association between job quality and product, process, and to a lesser extent organizational innovation. This is theorized as the interaction of two systems – job quality and innovation systems. Increased employment and improved job quality are found to result from innovation, while specific employment dimensions are found to impact innovation and job quality. Much of the evidence for this recursive interaction between innovation, job quality and employment derives from qualitative and quantitative studies carried out under the Horizon 2020 project QuInnE that specifically targeted these interrelations for analysis. Findings largely support the skill-biased technical change thesis, leading to the conclusion that while innovation tends to improve job quality, it will exacerbate societal inequalities. Strong evidence is also presented from several studies that higher innovation results from higher job quality, in line with previous research. None of these relationships are found to operate in a deterministic manner, and the actions of management, workers and the social partners play important mediating roles.

Skill Bias magnified: Identifying the role of international technology diffusion

This paper studies whether innovations underlying skill-biased technical change diffuse internationally and thereby contribute to the increasing skill demand and inequality in other countries. Using a new empirical framework and sectoral data for a panel of 40 emerging and developed countries, 25 industries and the period from 1995 to 2007, the analysis shows that technology diffusion is statistically and economically important in explaining skill-biased technical change. The results hold for both advanced and emerging economies, as well as in several robustness checks.

Transformation of the world job market in the conditions of the Fourth Industrial Revolution

The relevance of this research is substantiated by the fact that the world job market is currently under the influence of the Fourth Industrial Revolution (Industry 4.0). The goal lies in assessing the impact of cyclic and unexpected trends upon the job market, and thus, the forms of job management and employment functions. In this regard, analysis is conducted on the academic theories in the context of conceptualization of the impact of Industry 4.0 upon the job market and employment functions. The long-term trends in transformation of the job market are determined. The empirical basis of this research is comprised of the statistical data provided by Rosstat and the Ministry of Science and Higher Education of the Russian Federation, as well as the resources of analytical articles and scientific publications, including the materials of international organizations, leading consulting companies, global associations, leading educational institutions, other active participants of global educational environment, and job market experts. An overview is given to the trends that affect the companies, their strategies and business models; the impact of such trends upon the transformation of current professions and the emergence of new professions; skills required for these professions. The scientific novelty lies in substantiation of the concept of skill-biased technical change (SBTC) and the theory of routine-biased technological change (RBTC). The presented materials would allow the companies to combine business news with fundamental training of specialists for going along the new career trajectiory in light of the new technological challenges, which defines the practical value of this research.

Wages, Skills, and Skill-Biased Technical Change: The Canonical Model Revisited

The canonical supply-demand model of the wage returns to skill has been extremely influential; however, it has faced several important challenges. Several studies show that the standard approach sometimes produces theoretically wrong-signed elasticities of substitution, yields counterintuitive paths for skill-biased technical change (SBTC), and does not account for the observed deviations in college premia for younger vs. older workers. This paper shows that these failings can be explained by mis-measurement of relative skill prices and supplies (based on standard demographic composition-adjustments) and by inadequate ad hoc functional form assumptions about the path for SBTC. Improved estimates of skill prices and supplies that account for variation in skill across cohorts within narrowly defined groups help explain the observed deviation in the college premium for younger vs. older workers, even with perfect substitutability across age. Re-estimating the model with these prices and supplies produces a good fit with better out-of-sample prediction and robustly yields positive elasticities of substitution between high and low skill workers. The estimates suggest greater substitutability across skill and a more modest role for SBTC. We implement two new approaches to modelling SBTC. First, we study the extent to which recessions induce jumps or trend-adjustments in skill bias and find evidence that both features are important (but differ across recessions). Second, we link SBTC to direct measures of information technology investment expenditures and show that these measures explain the evolution of skill bias quite well. Together, these approaches suggest that the ad hoc assumptions for SBTC previously employed in the literature are too crude to fit the data well, leading to the incorrect conclusion that SBTC slowed during the early-1990s and under-estimates of the elasticity of substitution between high and low skill workers.

Presidential Address 2019: How Should Tax Progressivity Respond to Rising Income Inequality?

AbstractWe address the question in the title in a heterogeneous-agent incomplete-market model featuring exogenous idiosyncratic risk, endogenous skill investment, and flexible labor supply. The tax and transfer schedule is restricted to being log-linear in income, a good description of the US system. Rising inequality is modeled as a combination of skill-biased technical change and growth in residual wage dispersion. When facing shifts in the income distribution like those observed in the United States, a utilitarian planner chooses higher progressivity in response to larger residual inequality but lower progressivity in response to widening skill price dispersion reflecting technical change. Overall, optimal progressivity is approximately unchanged between 1980 and 2016. We document that the progressivity of the actual US tax and transfer system has similarly changed little since 1980, in line with the model prescription.

Rethinking the corporate digital divide: The complementarity of technologies and the demand for digital skills

In this paper, we rethink the corporate digital divide, a phenomenon not studied in detail in prior research. Motivated by innovation-diffusion, competence-based and skill-biased technical change theories, we hypothesize that all digital technologies’ innovations must be supported by demand for related skills and should be integrated into an innovation cycle. This research is conducted using a vast dataset of 1000 large Russian firms observed over ten years, with information collected from open internet-based sources and processed through content analysis. Among the key findings, the digital-innovation cycle has been explored and visualized, by identifying the most probable period of these innovations and their further diffusion. The digital-divide concept has been explicated by examining data on the relative dynamics of digital skills demanded by the same companies during the period of investigation. The empirical results deliver an interesting insight and encourage us to rethink the corporate digital divide through causality between competency accumulation and digital technological shifts. That, in turn, identifies the conditions necessary for the prediction of demand shocks in relation to digital competencies in labor markets.

Sub-Saharan Africa’s Diverging Inequality Trends, 1991-2011: A Structuralist Interpretation

The paper first documents the evolution of consumption inequality in 29 Sub-Saharan African countries over 1991-2011 on the basis of a new dataset accounting for over 80% of the population and GDP of the region. The study identifies a trend bifurcation, with 17 countries showing a decline in inequality and 12 an increase. Second, the paper aims at identifying the determinants of the observed inequality divergence by means of a theoretical discussion, summary review of the literature, and multivariate regression analysis. The results indicate that the main cause of such changes were shifts in output structure among sectors characterized by different levels of inequality. Within-sector inequality linked to skill-biased technical change significantly affected inequality in urban areas, but a lack of data did not make it possible to assess the impact of rising land concentration. Income redistribution by means of tax-and-transfers was limited, except in Southern Africa. As for the impact of international variables: an increase in the international prices of oil/metals and cash crops affected inequality by raising the value added shares of mining and agriculture. Remittances were found to be equalizing, while FDIs were un-equalizing and ODA non-significant. A decline in the incidence of HIV-AIDS and conflict intensity reduced inequality in a limited but statistically significant way.JEL Codes: C33, E26, J11, O11, Q15.

The rise of US earnings inequality: Does the cycle drive the trend?

We document that declining hours worked are the primary driver of widening inequality in the bottom half of the male labor earnings distribution in the United States over the past 52 years. This decline in hours is heavily concentrated in recessions: hours and earnings at the bottom fall sharply in recessions and do not fully recover in subsequent expansions. Motivated by this evidence, we build a structural model to explore the possibility that recessions cause persistent increases in inequality; that is, that the cycle drives the trend. The model features skill-biased technical change, which implies a trend decline in low-skill wages relative to the value of non-market activities. With this adverse trend in the background, recessions imply a potential double-whammy for low skilled men. This group is disproportionately likely to experience unemployment, which further reduces skills and potential earnings via a scarring effect. As unemployed low skilled men give up job search, recessions generate surges in non-participation. Because non-participation is highly persistent, earnings inequality remains elevated long after the recession ends.