Hollowing Out and Slowing Growth: the Role of Process Innovations

Wenbo Zhu ()

Review of Economic Dynamics, 2022, vol. 45, 217-236

Abstract: I develop an endogenous growth model with skill acquisition, which can simultaneously account for labour market polarization and a slow down in labour productivity growth. When a new technology enters the economy, it requires implementation by high-skilled workers. Over time, process innovation makes the technology more user-friendly so that lower skilled workers can also operate it. Process innovation contributes to growth by increasing the range of technologies that a lower skilled worker can operate. It also reallocates labour demand for different skill-groups and thereby affects the income distribution. Skill can be acquired through a costly learning activity and workers face different learning costs. I calibrate the model to match the European labour market in 2000 and 2014 respectively. I show that when the rate of process innovation decreases, labour productivity growth slows down and wage and employment become polarized. (Copyright: Elsevier)

Keywords: Labour market polarization; Labour productivity growth; Process innovation; Product innovation; Europe (search for similar items in EconPapers)
JEL-codes: E24 J24 O33 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.red.2021.06.004

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