Working Papers

  • Does Growth Lead to Labor Reallocation? Role of Own-Product Improvement vs. Product Expansion [paper] [online appendix]

*Submitted **Supersedes 'Growth and Labor Reallocation: Vertical versus Horizontal Innovation'

Abstract:

I study the relationship between long-run growth and labor reallocation when incumbent producers both innovate over their previous products (own-product improvements) and expand to new product markets (product expansion). I calibrate a quality ladder model of endogenous growth with an establishment panel survey data that distinguish different innovation types. I discover that own-product improvements account for 90% of productivity growth and 81% of the welfare gains from faster growth after R&D incentives. Since own-product improvements have smaller effects to reallocate labor between establishments, despite an increase in growth rates, labor reallocation rates barely change in response to R&D incentives.


*Supersedes 'Innovation on Tools and the Rise of Skill Premium'

Abstract:

This paper develops a measure of Capital-Embodied Innovation (CEI). The measure counts the number of patents applied to capital goods by matching patent documents with Wikipedia articles on capital goods. Using occupation-level variations on the sets of capital goods from O*NET, we document that CEI is biased toward abstract and non-routine occupations. Furthermore, we highlight the heterogeneous effects of CEI across the capital-occupation relationship. When the capital good performs a similar function as the occupational task (task-substituting capital), the CEI reduces the relative demand for labor. In case the capital good performs a different function than the occupation tasks (task-complementing capital), the CEI raises relative demand for labor. Abstract occupations have disproportionately more CEI on task-complementing capital than non-abstract occupations. A model-based counterfactual implies that the employment growth between the 1980s and the 2010s would be 37% less biased towards abstract-task occupations without CEI. The degree of job polarization and occupational wage inequality would have also been lower without CEI.

Work in Progress

Discussion

  • Productivity Gains from Labor Outsourcing [slides] by Gorkem Bostanci