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

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  • 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 (Lewbel, 2012). Additionally, we perform sensitivity analysis to account for omitted variables bias following the recent theoretical results of Oster (2015). 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 categorization of workers according to skill level shows that high-skilled workers are favored 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, 2016. "The dynamics of profits and wages: technology, offshoring and demand," LEM Papers Series 2016/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:2016/04
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    References listed on IDEAS

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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. repec:spr:eurasi:v:8:y:2018:i:1:d:10.1007_s40821-017-0100-x is not listed on IDEAS
    3. Francesco Bogliacino & Valeria Cirillo & Cristiano Codagnone & Marta Fana & Francisco Lupanez-Villanueva & Giuseppe A Veltri, 2019. "Shaping individual preferences for social protection: the case of platform workers," LEM Papers Series 2019/21, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. 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.

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    Keywords

    rent; surplus; distribution; inequality; skills; offshoring; R&D;

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