Essays on Economic Growth and the skill bias of technology
My dissertation is a collection of three essays that consider various aspects of long-run economic growth as well as income inequality and the demand for skilled labor.
The first chapter, co-authored with Joachim Voth, investigates the questions why England was the
first country to industrialize. We present a probabilistic two-sector model where the initial escape from Malthusian constraints depends on the demographic regime, capital deepening and the use of more differentiated capital equipment. Weather-induced shocks to agricultural productivity interact with the demographic regime and affect the speed of growth. We calibrate our model to match the main characteristics of the English economy in 1700 and the observed transition until 1850. Higher initial per capita incomes together with fertility limitation increase industrialization probabilities. In contrast to unified growth theory in the tradition of Galor-Weil (2000) and Galor-Moav (2002), our setup does not depend on human capital accumulation and is therefore closer to the empirics. Since there is little evidence that human capital increased before 1850, this solves an important shortcoming in the existing literature. Simulations using parameter values for other countries show that Britains early escape was only partly due to
chance. France could have moved out of agriculture and into manufacturing faster than Britain, but the probability was less than 30 percent. Contrary to recent claims in the literature, 18th century China had only a minimal chance to escape from Malthusian constraints. [This chapter is published in: Journal of
Economic Growth 2006, 11(4): 319-361.]
The second chapter is motivated by the finding that relatively high initial incomes in 1700 gave European countries the edge to industrialize. This chapter is also co-authored with Joachim Voth. Using a simple Malthusian model with two sectors, we examine why Western Europe overtook China in terms of incomes and urbanization rates in the early modern period (1450-1700). Standard accounts of this "reversal of fortune" emphasize European inventiveness and the slackening of Chinese technological creativity (Mokyr, 1990). That living standards could exceed subsistence levels in a Malthusian setting at all should be surprising. Rising fertility and falling mortality ought to have reversed any gains. We show that productivity growth in Europe can only explain a tiny fraction of rising living standards. Population dynamics changes of the birth and death schedules were far more important drivers of the long-run Malthusian equilibrium. In our setup, population fell following the Black Death; wages surged. Because
of Engels Law, demand for urban products increased, raising urban wages and attracting rural population.
European cities were particularly unhealthy; urbanization pushed up aggregate death rates. This effect was reinforced by more frequent wars, fed by city wealth, and disease spread by trade. Thus, higher wages themselves reduced population pressure. Without technological change, our model can account for income increases that led to levels far above subsistence, as well as the sharp rise in European urbanization. Human capital accumulation is at the heart of unified growth theory. The transition from stagnation
to growth in these models goes hand in hand with an increasing importance of skills. Historical observations suggest the opposite: The first stage of the Industrial Revolution was skill-replacing rather than skill-using. It was only later on that technical change became skill biased. Yet, we do not fully understand what caused this change in the nature of technologically-induced factor demand. Previously suggested explanations like international trade or complementarities between technology and skills cannot account for the sheer magnitude of the observed skill bias in recent decades. This motivates the third chapter. I present a novel stylized fact and analyze its contribution to the skill bias of technical change: The share of skilled labor embedded in intermediate inputs correlates strongly with the skill share employed in final production. This finding points towards an intersectoral technology-skill complementarity (ITSC). Empirical evidence suggests that the channel through which this complementarity works is product innovation driven by skilled workers. Together with input-output linkages, the observed complementarity delivers a multiplier that reinforces skill demand along the production chain. The effect is large, accounting for more than one third of the observed skill upgrading in U.S. manufacturing over the period 1967-92.
I also present a simple multi-sector model with intermediate linkages that integrates the observed ITSC into the standard framework of skill-biased technical change. Therein, the relative productivity of skilled workers rises with the skill intensity of intermediates. A calibration exercise confirms the quantitative
importance of the ITSC.
School:Universitat Pompeu Fabra
Source Type:Master's Thesis
Keywords:economia i empresa
Date of Publication:05/28/2008