Incentives for labor-augmenting innovation: The role of wage rate
Luca Sandrini ()
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Luca Sandrini: Department of Economics and Management, University of Padova
No 232, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"
This paper analyzes how the incentives to produce and to adopt labor-augmenting innovation are linked to the wage rate. I design a model of a vertically related industry, where downstream manufacturers can choose between a standard low-quality capital input or a superior one produced by an upstream innovator. High-quality capital input allows adopting firms to have a higher labor productivity. I show that there is an inverted-U shaped relationship between the wage rate and the incentive to invest in innovation based on two opposite forces: a positive cost-reducing effect and a negative output contraction effect. Finally, this paper provides some support for the introduction of a minimum wage, which is found able to increase both the investments in innovative activities and the social welfare.
Keywords: labor-augmenting innovation; vertical relation; oligopoly; minimum wage (search for similar items in EconPapers)
JEL-codes: J31 L13 O31 (search for similar items in EconPapers)
Pages: 31 pages
New Economics Papers: this item is included in nep-ino and nep-lma
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0232
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