Internal labour markets and industrial relations in Continental Europe are characterized by substantial rigidity of employed labour. The rigidity of employed labor adds and augments the irreversibility of fixed capital. This rigidity affects both the rate and the direction of technological change. The irreversibility of both production factors induces the localized introduction of biased technological change directed towards the more intensive use of inputs that are becoming more expensive. The localized introduction of biased technological change contrasts the classical inducement hypothesis according to which new biased technologies are directed towards the most intensive use of inputs that are becoming less expensive. In our theoretical underpinning the localized introduction of biased technological change is induced, instead, towards the more productive use of the inputs that are becoming more expensive because they are characterized by substantial rigidity and irreversibility. Firms, localized in a limited portion of the technical space by the competence and expertise acquired by learning processes in the proximity of the techniques in use and by the quasi-irreversibility of their stocks of both capital and labour, react to the changes in the levels of wages by means of the introduction of new biased technologies directed towards the more intensive use of labour that in the European experience can be characterized as a rigid production factor. The localized introduction of directed and biased technological innovations has clear effects on total factor productivity levels. The empirical evidence on the determinants and the effects of the localized introduction of directed technological changes across a sample of European regions in the years 1995-2004 provides significant support to the hypotheses and confirms both the significant role of the changes in wages in the increase of the output elasticity of labour and its significant effects on multi factor productivity.
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Acemoglu, Daron & Zilibotti, Fabrizio, 1998.
"Productivity Differences,"
Seminar Papers
660, Stockholm University, Institute for International Economic Studies.
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