Offshoring and skill-biased technical change
Daron Acemoglu, Gino Gancia, Fabrizio Zilibotti 30 September 2014
Offshoring of production can have a deep impact on the wages and welfare of workers with different abilities through its effect on technological progress. This column argues that, when labour is sufficiently cheap abroad, firms have incentives to offshore low-skill tasks and invest in skill-biased technologies at home. Over time, however, offshoring raises foreign wages. This increases demand for all firms and makes innovations complementing low-skill workers more profitable. As a result, offshoring can eventually lead to higher wages for everybody and less inequality.
Offshoring, the demand for skill, and biased innovations
The rapid rise of offshoring has been one of the most visible trends in the US labour market over the last three decades. Despite its prevalence, the implications for wages and skill premia are still debated (see, for instance, Grossman and Rossi-Hansberg 2008 and Baldwin and Robert-Nicoud 2014).
International trade Labour markets Poverty and income inequality Productivity and Innovation
offshoring, skill-biased technical change, Inequality, wages, technological progress, innovation
Endowments for war in 1914
Avner Offer 19 September 2014
Victory in World War I relied on three types of energy: renewable energy for food and fodder, fossil energy, and high explosive. This column argues that the Allies had a clear advantage in manpower, coal, and agriculture, but not enough for a quick decision. Mobilisation in continental economies curtailed food production, occasionally to a critical level. Technical competition was a matter of capacity for innovation, not of particular breakthroughs. Coercive military service and rationing of scarce energy and food had egalitarian consequences that continued after the war.
World War I was a mistake. Its consequences were not part of anybody’s expectations (excepting Stead and Bloch 1899) – certainly not of those who set it off, although there was an undertone of fatalism in their decisions (Offer 1995). If one side had possessed an unassailable superiority, then there would have been no call for war. The war’s duration indicates that the sides were matched, that the outcome was uncertain, and that instigating war was therefore a colossal gamble – and, as it turned out, a bad one. The decisions for war were irresponsible, incompetent, and worse.
Economic history Energy
WWI, World War I, war, imperialism, nationalism, energy, Agriculture, technology, technological change, innovation, conscription, Inequality, rationing
African growth looking forward
Marco Annunziata 16 August 2014
Africa has generated a lot of enthusiasm lately. The cynical view of the continent as a hopeless basket case has been replaced by the lofty narrative of Africa Rising. This column argues that Africa’s progress is impressive, and there is more to the story than a commodity boom. But Africa is at a crossroads. The opportunities are huge, but the road ahead is long, and will require persistent and patient effort from policymakers as well as business.
Views on Africa’s growth prospects have jumped from utter pessimism to extreme enthusiasm. The latter has been centre-stage with the US–Africa Summit hosted in Washington DC from 4–6 August 2014, with the participation of top political and business leaders. My coauthors Todd Johnson and Shlomi Kramer and I have tried to take a sober assessment of Africa’s progress and prospects, looking beyond the current hype and the inevitable frustration that doing business in the region still generates (Annunziata et al. 2014).
development, growth, Africa, human capital, trade, innovation, infrastructure, commodity boom
Agglomeration and product innovation in China
Hongyong Zhang 21 July 2014
The Chinese government has been actively promoting innovation via policies such as R&D subsidies, tax relief, and location policies. Since 1995, central and local governments have established more than 100 clusters in over 60 cities. This column presents new evidence on the effect of the concentration of firms on product innovation (new products) in the manufacturing industries.
Spatial agglomeration of economic activities is generally assumed to improve productivity and spur firms’ innovation through localisation economies and urbanisation economies.1 There is an extensive empirical literature investigating the effects of localisation and urbanisation on firm-level productivity. Despite its economic importance, there are few empirical studies focusing on agglomeration and product innovation. Feldman and Audretsch (1999) and De Beule and Van Beveren (2010) are two of the few exceptions.
Productivity and Innovation
R&D, productivity, China, spatial concentration, innovation, subsidies, clusters, agglomeration
Protection of intellectual property to foster innovations in the service sector
Masayuki Morikawa 20 July 2014
Innovation is a key driver of productivity growth, but innovation in the service sector has received relatively little attention. This column shows that the total factor productivity gap between Japanese firms with and without innovations is larger in services than in manufacturing. Whereas the percentage of firms holding patents is much higher in manufacturing than in services, trade secrets are just as important in both sectors. These results suggest that the protection of trade secrets makes an important contribution to productivity growth.
Given the declining labour force due to population ageing, accelerating the productivity growth of industries – especially the service industries – is an important element of the growth strategy in Japan and most advanced countries. While there are a variety of factors affecting productivity, innovation is one of the key determinants of productivity growth. However, innovation in the service sector has not been studied well. I present findings on innovation in the service sector by focusing on the effect of intellectual property rights on innovation.
Productivity and Innovation
R&D, growth, productivity, patents, Japan, innovation, services, intellectual property, trade secrets
Trust-based working time spurs innovation
Holger Görg, Olivier N. Godart, Aoife Hanley, Christiane Krieger-Boden 08 July 2014
Many firms are replacing traditional working hours with more flexible arrangements, reflecting new thinking on employee motivation. This column presents evidence from Germany that trust-based working time is associated with increased innovation. However, trust-based working hours also contribute to the blurring of workers’ professional and private lives, and may lead to excessive overtime. Careful design of trust-based working arrangements is required to reap the innovations gains while avoiding the health pitfalls.
The organisation of work has changed dramatically over the last few decades. In particular, the formerly rigidly regulated working time has been replaced by flexible working hour schemes in numerous firms around the world. Taking Germany as an example, in 2010, 36% of employees were entitled to some form of flexible working hours scheme (Figure 1).
Health economics Labour markets Productivity and Innovation
Germany, working hours, trust, health, innovation, motivation, overtime, flexibility, working time
R&D internationalisation during the Global Crisis
Bernhard Dachs, Georg Zahradnik 06 July 2014
The Global Crisis brought a halt to three decades of R&D internationalisation, in which foreign firms’ share of total R&D expenditure had increased in almost all countries where data is available. However, this column argues that the crisis did not lead to a new global distribution of overseas R&D expenditure, despite the erosion of the EU’s share. The persistence of R&D expenditure is attributed to the costs of relocating R&D and to the autonomy of foreign subsidiaries.
Foreign firms’ share of total business R&D expenditure increased during the last three decades in almost all countries where data is available, but this trend stopped with the Global Crisis of 2008–2009. In most countries, R&D of foreign firms was more severely affected by the crisis than R&D of domestic firms. However, the crisis did not lead to a new global distribution of overseas R&D expenditure.
Global crisis Productivity and Innovation
R&D, globalisation, multinationals, FDI, innovation, global crisis, persistence, autonomy, subsidiaries
How highly educated immigrants raise native wages
Giovanni Peri, Kevin Shih, Chad Sparber 29 May 2014
Immigrants to the US are drawn from both ends of the education spectrum. This column looks at the effect of highly educated immigrants – in particular, those with degrees in Science, Technology, Engineering, or Mathematics – on total factor productivity growth. The authors find that foreign STEM workers can explain 30% to 60% of US TFP growth between 1990 and 2010.
Immigration to the US has risen tremendously in recent decades. Though media attention and popular discourse often focus on illegal immigrants or the high foreign-born presence among less-educated workers, the data show that immigrants are drawn from both ends of the education spectrum. At the low end, immigrants grew from 5% of workers with a high school degree or less in 1970 to 20.8% in 2010. At the high end, the figure rose from 7.3% to 18.2% for those with graduate degrees over the same period.1
Labour markets Migration Productivity and Innovation
US, growth, productivity, wages, immigration, innovation, complementarities, STEM
Internationalisation and innovation of firms: Give them one roof
Carlo Altomonte, Tommaso Aquilante, Gábor Békés, Gianmarco I.P. Ottaviano 21 March 2014
Internationalisation and innovation policies are frequently considered to be key drivers of growth. This column documents a strong positive association between internationalisation, innovation, and productivity at the firm-level across seven European countries. This association continues to hold after controlling for country, size, industrial sector, and firm specific characteristics, with some evidence of causality running from innovation to internationalisation. The analysis suggests that policymakers should coordinate, if not integrate, innovation and internationalisation policies in order to boost productivity and growth.
Policymakers traditionally have attempted to encourage internationalisation based on the implicit rationale that the latter is associated with productivity and/or employment growth. At the same time, since innovation is the key driver of productivity growth, much attention has been devoted to the specific channels through which trade and innovation are linked (see Aiginger 2011). However, in most European countries, as well as at the EU level, these policies are carried out through various, often unrelated agencies – as found by EIM (2010), a European report reviewing some 130 programmes.
Productivity and Innovation
internationalisation, innovation, productivity growth