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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"

Abstract: 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
Date: 2019-06
New Economics Papers: this item is included in nep-ino and nep-lma
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