2016/04 | LEM Working Paper Series | ||||||||||||||||
The dynamics of profits and wages: technology, offshoring and demand |
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Francesco Bogliacino, Dario Guarascio and Valeria Cirillo |
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Keywords | |||||||||||||||||
rent; surplus; distribution; inequality; skills; offshoring; R&D
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JEL Classifications | |||||||||||||||||
O33, F15, J31
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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.
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