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The dynamics of profits and wages: technology, offshoring and demand

Author

Listed:
  • Francesco Bogliacino
  • Dario Guarascio
  • Valeria Cirillo

Abstract

This article explores the impact of innovation, offshoring and demand on profits and wage dynamics. Empirical analysis is performed on a panel of 37 industries (1995–2010) across five European countries. Our identification strategy relies on instrumental variables and recently proposed heteroskedasticity-based instruments. Additionally, we perform sensitivity analysis to account for omitted variables bias. The main results of our study can be summed up in three points. First, it highlights the contrasting effects of R&D and offshoring as wage determinants. Second, it shows that external demand is a key variable driving profits growth. Third, the categorisation of workers according to skill level shows that high-skilled workers are favoured by both innovation and offshoring, offshoring exerts downward pressure primarily on low-skilled wages and profits are positively correlated with high-skill wages, negatively correlated with medium-skill wages and not correlated with low-skill wages.

Suggested Citation

  • Francesco Bogliacino & Dario Guarascio & Valeria Cirillo, 2018. "The dynamics of profits and wages: technology, offshoring and demand," Industry and Innovation, Taylor & Francis Journals, vol. 25(8), pages 778-808, September.
    • Handle: RePEc:taf:indinn:v:25:y:2018:i:8:p:778-808
    DOI: 10.1080/13662716.2017.1349651
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    Citations

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    Cited by:

    1. Mario Pianta, 2018. "Technology and Employment: Twelve Stylised Facts for the Digital Age," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 61(2), pages 189-225, June.
    2. Mariacristina Piva & Marco Vivarelli, 2018. "Technological change and employment: is Europe ready for the challenge?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(1), pages 13-32, March.
    3. Óscar Afonso & Ana Rita Longras, 2022. "Corruption, institutional quality, and offshoring: How do they affect comparative advantage, inter‐country wage inequality, and economic growth?," Metroeconomica, Wiley Blackwell, vol. 73(4), pages 987-1020, November.
    4. Wang, Linhui & Cao, Zhanglu & Dong, Zhiqing, 2023. "Are artificial intelligence dividends evenly distributed between profits and wages? Evidence from the private enterprise survey data in China," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 342-356.
    5. Wang, Chao & Zhang, Yue-Jun, 2022. "The effect of environmental regulation and skill premium on the inflow of FDI:Evidence from Chinese industrial sectors," International Review of Economics & Finance, Elsevier, vol. 81(C), pages 227-242.
    6. Alexander Schiersch & Irene Bertschek & Thomas Niebel, 2025. "To diversify or not? The link between global sourcing of ICT goods and firm performance," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 34(1), pages 94-116, January.
    7. Coveri, Andrea & Pianta, Mario, 2022. "Drivers of inequality: wages vs. profits in European industries," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 230-242.
    8. Fuster, Begoña & Lillo-Bañuls, Adelaida & Martínez-Mora, Carmen, 2020. "Reshoring of services and employment," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 233-246.
    9. Evan, Tomáš & Holý, Vladimír, 2021. "Economic conditions for innovation: Private vs. public sector," Socio-Economic Planning Sciences, Elsevier, vol. 76(C).
    10. Andrea Coveri & Mario Pianta, 2019. "The Structural Dynamics of Income Distribution:Technology, Wages and Profits," Working Papers 1901, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2019.
    11. Francesco Bogliacino & Valeria Cirillo & Cristiano Codagnone & Marta Fana & Francisco Lupi��ez-Villanueva & Giuseppe A Veltri, 2019. "Shaping Individual Preferences for Social Protection: The Case of Platform Workers," Documentos de Trabajo, Escuela de Economía 17293, Universidad Nacional de Colombia, FCE, CID.
    12. Bramucci, Alessandro & Cirillo, Valeria & Evangelista, Rinaldo & Guarascio, Dario, 2021. "Offshoring, industry heterogeneity and employment11This paper is the research outcome of two projects: the ISIGrowth project on Innovation-fuelled, Sustainable, Inclusive Growth funded by the European," Structural Change and Economic Dynamics, Elsevier, vol. 56(C), pages 400-411.
    13. Woocheol Lee, 2022. "Domestic Share of Value-Added and the Development of Production Capabilities of Local Firms within Global Value Chains," Journal of Economic Development, The Economic Research Institute, Chung-Ang University, vol. 47(2), pages 81-99.
    14. Matilde Cardoso & Pedro Cunha Neves & Oscar Afonso & Elena Sochirca, 2021. "The effects of offshoring on wages: a meta-analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(1), pages 149-179, February.
    15. Tom'av{s} Evan & Vladim'ir Hol'y, 2020. "Economic Conditions for Innovation: Private vs. Public Sector," Papers 2004.07814, arXiv.org, revised Oct 2020.

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