market size or acceleration effects; hypotheses to explain skill biased technical change* mark...

Market Size or Acceleration Effects; Hypotheses to Explain Skill Biased Technical Change*

Mark SandersMax Planck Institute for Economics

Entrepreneurship, Economic Growth and Public PolicyKahlaïsche Strasse 10

D-07745, Jena, [email protected]

Mark Sanders, Max Planck Institute for EconomicsAnnual Conference of the European Economic Association, Amsterdam August 24-27 , 2005 1 of 17

Outline

Motivation

The Model

Competing Hypotheses

Agenda for Further Research


Motivation

0

0.1

0.2

0.3

0.4

0.5

0.6

1975 1978 1981 1984 1987 1990 1993 1996 1999

Colle

ge-H

igh Sc

hool

Log W

age R

atio

-1-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10

Log R

elativ

e Sup

ply In

dex

Males Females College/High School Eq.


Motivation

1) The labour market perspective of low skilled workers deteriorated

2) Trade, Technology or something completely different?

3) SBTC, ok but how?


MotivationDirection…

Hicks (1942) + Romer (1990) =(Strong) Market Size Hypothesis Acemoglu (1996,1998,2002),Kiley (1999)

…or SpeedNelson&Phelps (1966) + Greenwood&Uysal (2004) =

Acceleration HypothesisAghion (2001), Galor&Tsiddon (1997)


Aim(s) of the Paper1) Develop a general model that can

illustrate/evaluate both hypotheses 2) Identify parameter and specification

restrictions 3) Evaluate the available empirical

evidence4) Formulate future empirical research

agenda


The Model

0)(

)(log:max dttCeU tρ

tCs.t. )()()()( tAtCtrAtY

)()(

)()(

)()(

tPtP

tEtEρr

tCtC

Consumers:

αnα

icdiicC

1

0)()(:max

s.t. Ediicip

n

0

)()(

PE

Pipic αD 1

1)()(

αα

nαα

diipCEP

1

0

1)(

CEP


The Model

s.t.

Producers:)()()()(:max

)(itcipiyiπ

ip )()( iciy D

βSS

DS ilbiy )()(

Sni

SS

DS E

wαβL E

bb

ww

nnE

αβα

S

Sαβαβ

S

S

S

SS

111

1

SSS nEαβiπ /)1()( Sni

},{ LHS


The ModelShort-Run Equilibrium:

αβ

L

Hαβ

α

L

H

L

H

L

H

ww

bb

nn

LL

11

1

wH/wL

nH/nL

Relative SupplyShift

PMA-curve

LH/LLZ2 Z1

Z1

Z2


The ModelThe Value of Innovation:

t

SτtrS τdτPτπe

tPtv

)()(

)()( )(

Pπ

S

t

τtPPππrSS GGr

tπτdetPtπtPtv

S

)()()()()( ))(//(

Pπ

H

Pπ

LL GGr

tπλGGr

tπtvHL

)()()(

For the Life Cycle Model:


The ModelThe “Production” of Innovation:

For the Life Cycle Model λ=1LH

LH

γDD

ζψL

ζψH

ψL

Lγ

RRχφ

Lχφ

Hφ

nnnnnn

RannnnnλRannnn

)1)(1()1(

)1)(1()1( )1(

1010101010

ζψχφγ


The ModelInnovators/Entrepreneurs:

DRLLDR

RRHRR

Rwvnπ

Rwvnπ

D

R

:max:max

Lγ

Dζψ

Lζψ

Hψ

DR

Hγ

Rχφ

Lχφ

Hφ

RR

vRnnnaγwvRnnnaγw

1)1)(1()1(

1)1)(1()1(

γ

D

Rγ

H

Lγ

φψ

L

Hγ

χφζψ

L

H

D

R

aa

vv

nn

nn

RR

11

11

11)1()1(

1

Short-Run Equilibrium:


The ModelSteady State Equilibrium:

*RRR DR

L

L

H

H

nn

nn

nn

γ

D

Rγ

L

Hγφψ

L

Hγ

χφζψ

L

H

D

R

aa

nnλ

nn

nn

RR

11)1()1(

1


The ModelSteady State Equilibrium:

αβαβ

γ

D

Rγ

γ

L

Hγψφ

L

Hγ

ζψχφ

L

Hβ

L

H

L

H

aa

nnλ

nn

nnλ

bb

ww

111)1()1(1

1

wH/wL

nH/nL

PMARDA I

RDA II

RDA III

nH/nL nH/nL

wH/wLwH/wL

PMAPMA


Competing HypothesesThe Strong Market Size Effect:1) More likely when intra-sectoral (intertemporal)

spillovers are high.- Evidence is scarce and ambiguous

2) More likely when returns to scale are constant in R&D.- Evidence suggests they are diminishing

3) Requires high and low skilled to be gross substitutes.- Evidence suggests they areMark Sanders, Max Planck Institute for EconomicsAnnual Conference of the European Economic Association, Amsterdam August 24-28 , 2005 15 of 17

Competing HypothesesThe Acceleration Hypothesis:1) Requires PLC to be present

- Evidence is abundant and unambiguous

2) Insensitive to parameter values and specification of innovation functions.- Evidence is scarce and ambiguous

3) Requires shock in parameters or specification of innovation functions at the arrival of a GPT.- Evidence is scarce and anecdotal


Agenda for Research1) Establish PLC Empirically.

- distinguishing workers by education and job types

2) Estimate Innovation Functions - distinguishing radical and incremental innovation or

product and process innovation

3) Estimate Duration of Bias.- how fast or slow do we move over PLC and to what extent

is bias permanent


Thank You

Questions and/or Comments?


market size or acceleration effects; hypotheses to explain skill biased technical change* mark...

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