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Technology, trade, and income distribution in West Germany: A factor-share analysis, 1976-1994

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Abstract

This paper examines the determinants of functional income distribution in West Germany. The approach is to estimate a complete system of factor share equations for low-skilled labor, high-skilled labor, capital, energy, and materials, taking account of biased technological progress and increasing trade-orientation. Technological progress is found to reduce the share of low-skilled labor and to raise the share of high-skilled labor. The effect of technology bias on the two labor shares is enhanced by substitution of intermediate inputs for lowskilled labor, which is almost absent in the case of high-skilled labor. Trade-induced changes in the composition of aggregate output tend to mitigate these effects, due to the relatively favorable export performance of low-skill intensive industries. The year-to-year variation in the low-skilled share can be attributed to input prices, biased technological progress, and trade-induced structural change in the proportion 19:77:4. For high-skilled labor and capital, the output composition effect of trade contributes about one percent. The results are robust across several specifications examined.

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Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VIII (2005)
Issue (Month): (November)
Pages: 321-345

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Handle: RePEc:cem:jaecon:v:8:y:2005:n:2:p:321-345

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Keywords: income shares; factor substitution; technological progress; trade;

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References

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  1. Ingo Geishecker, 2002. "Outsourcing and the Demand for Low-skilled Labour in German Manufacturing: New Evidence," Discussion Papers of DIW Berlin 313, DIW Berlin, German Institute for Economic Research.
  2. Damien NEVEN. & Charles WYPLOSZ, 1996. "Relative Prices, Trade and Restructuring in European Industry," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9615, Université de Lausanne, Faculté des HEC, DEEP.
  3. Susan N. Houseman & Katharine G. Abraham, 1995. "Earnings Inequality in Germany," Book chapters authored by Upjohn Institute researchers, in: Richard B. Freeman & Lawrence F. Katz (ed.), Differences and Changes in Wage Structures, pages 371-403 W.E. Upjohn Institute for Employment Research.
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Cited by:
  1. Carsten Ochsen, 2006. "Zukunft der Arbeit und Arbeit der Zukunft in Deutschland," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(2), pages 173-193, 05.
  2. Lena Jacobi & Sandra Schaffner, 2008. "Does Marginal Employment Substitute Regular Employment? – A Heterogeneous Dynamic Labor Demand Approach for Germany," Ruhr Economic Papers 0056, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Elisabeth Kutschka, 2011. "Quality Upgrading, Skill Demand and International Trade: The Case of German Manufacturing," FEMM Working Papers 110022, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  4. Adela Luque & C.J. Krizan, 2009. "The Micro-Dynamics of Skill Mix Changes in a Dual Labor Market: The Spanish Manufacturing Experience," Working Papers 09-12, Center for Economic Studies, U.S. Census Bureau.

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