Technology, Wages, and Jobs
This chapter focuses on the consequences of innovation for the labor market, by investigating how innovation and the diffusion of new technology affect the level of employment, wages, and the occupational structure. The chapter also explores the interaction between labor market institutions, specifically workers' unions, and the rate of R&D spending, as well as examining union influence on the sharing of the profits from innovation. The first half of this chapter sets out the microeconomics of labor markets, exploring the role of new technology and product innovation at the firm and industry level. We also review some empirical microeconomic evidence to see whether it supports the predictions of the economic theory.
Over the long term, innovation is seen as fundamental to the growth of output, which in turn sustains the demand for workers. The latter half of the chapter returns to the interactions between innovation, international trade, and economic growth, but with a focus on how these forces determine the composition of the job market as well as their impact on the wage differentials between skilled and unskilled workers. In the modern era of the knowledge economy, where, in advanced countries, the majority of workers are employed in service activities, the predominant view is that high-skilled workers are complementary to high-technology capital and knowledge stocks, while those with lower skills are substitutes for capital. The term skill-biased technological change has been coined to describe this phenomenon. It implies that high-skilled workers will benefit from new technology, while low-skilled workers will suffer a loss of demand leading to lower wages and higher unemployment.
As discussed in chapter 1, a process innovation causes a lowering of costs, with the possibility of increased demand and, thus, output