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Incentives for labor-augmenting innovation: The role of wage rate

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  • Luca Sandrini

    (Department of Economics and Management, University of Padova)

Abstract

This paper analyzes how the incentives to produce and to adopt labor-augmenting innovation are linked to the wage rate. I design a model of a vertically related industry, where downstream manufacturers can choose between a standard low-quality capital input or a superior one produced by an upstream innovator. High-quality capital input allows adopting firms to have a higher labor productivity. I show that there is an inverted-U shaped relationship between the wage rate and the incentive to invest in innovation based on two opposite forces: a positive cost-reducing effect and a negative output contraction effect. Finally, this paper provides some support for the introduction of a minimum wage, which is found able to increase both the investments in innovative activities and the social welfare.

Suggested Citation

  • Luca Sandrini, 2019. "Incentives for labor-augmenting innovation: The role of wage rate," "Marco Fanno" Working Papers 0232, Dipartimento di Scienze Economiche "Marco Fanno".
    • Handle: RePEc:pad:wpaper:0232
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    References listed on IDEAS

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    More about this item

    Keywords

    labor-augmenting innovation; vertical relation; oligopoly; minimum wage;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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