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Openness, Wage Floors and Technology Change

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Author Info
Winfried Koeniger (IZA, University of Bonn)

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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.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Macroeconomics.

Volume (Year): 7 (2007)
Issue (Month): 1 ()
Pages: 1373-1373
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Handle: RePEc:bep:maccon:v:7:y:2007:i:1:p:1373-1373

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Related research
Keywords: embodied technology change openness minimum wage skill premia

Find related papers by JEL classification:
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

References listed on IDEAS
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  1. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-94, June. [Downloadable!] (restricted)
  2. Winfried Koeniger & Marco Leonardi, 2006. "Capital Deepening and Wage Differentials: Germany vs. US," IZA Discussion Papers 2065, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Stephen Machin & John Van Reenen, 1998. "Technology and changes in skill structure: evidence from seven OECD countries," IFS Working Papers W98/04, Institute for Fiscal Studies.
    Other versions:
  4. van Ark, Bart, 1998. "Productivity," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 171-174, June. [Downloadable!] (restricted)
  5. Plutarchos Sakellaris & Focco Vijselaar, 2005. "Capital quality improvement and the sources of economic growth in the euro area," Economic Policy, CEPR, CES, MSH, vol. 20(42), pages 267-306, 04. [Downloadable!] (restricted)
  6. Paul Beaudry & David A. Green, 2003. "Wages and Employment in the United States and Germany: What Explains the Differences?," American Economic Review, American Economic Association, vol. 93(3), pages 573-602, June. [Downloadable!]
  7. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-1), pages 327-377. [Downloadable!]
  8. Daron Acemoglu & Fabrizio Zilibotti, 2001. "Productivity Differences," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 563-606, May. [Downloadable!] (restricted)
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  9. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "The Effects of Technical Change on Labor Market Inequalities," Working Papers 89, Princeton University, Department of Economics, Center for Economic Policy Studies.. [Downloadable!]
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  10. Daron Acemoglu & Jorn-Steffen Pischke, 1999. "The Structure of Wages and Investment in General Training," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 539-572, June. [Downloadable!] (restricted)
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  11. Elias Dinopoulos & Paul Segerstrom, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June. [Downloadable!] (restricted)
  12. Brecher, Richard A, 1974. "Minimum Wage Rates and the Pure Theory of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 98-116, February. [Downloadable!] (restricted)
  13. Daniel J. Wilson, 2002. "Is Embodied Technology the Result of Upstream R&D? Industry-Level Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 285-317, April. [Downloadable!] (restricted)
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  14. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-08, May. [Downloadable!] (restricted)
  15. Kramarz, Francis, 2003. "Wages and International Trade," CEPR Discussion Papers 3936, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  16. Mathias Thoenig & Thierry Verdier, 2003. "A Theory of Defensive Skill-Biased Innovation and Globalization," American Economic Review, American Economic Association, vol. 93(3), pages 709-728, June. [Downloadable!]
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