Title:Skill-Replacing Technological Change and the Skill Premium: Theory and Evidence
Speaker:Dr. Wenbo Zhu, University of International Business and Economics.
Time:12:00-13:30, November 9, Friday
Venue:Room 1211 A, Gezhi building
I study the contrasting effects of product innovation and process innovation on the skill premium at the industry level. I develop a dynamic general equilibrium model in which firms conduct both types of innovation endogenously. Using the argument of the life cycle of technological progress, this model provides a stylized interpretation in which product innovation is skill-complementing, and process innovation is skill-replacing. I show how each type of innovation affects the skill premium through the labour demand channel, and also how the skill premium affects the incentives to develop each type of innovation differentially. Combining two novel European datasets, I estimate this two-way relationship derived from the model at the industry level. I address the issue of simultaneity using an instrumental variable approach suggested by the model. Finally, I calibrate the model and conduct some quantitative exercises.