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

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

Volume (Year): 8 (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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  15. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, September.
  16. 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.
  17. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
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  19. Fitzenberger Bernd, 1999. "International Trade and the Skill Structure of Wages and Employment in West Germany / Außenhandel und die Qualifikationsstruktur von Löhnen und Beschäftigung in Westdeutschland," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 219(1-2), pages 67-89, February.
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