New technology and old institutions: An empirical analysis of the skill-biased demand for older workers in Europe

Peng, Fei and Anwar, Sajid and Kang, Lili (2015): New technology and old institutions: An empirical analysis of the skill-biased demand for older workers in Europe.

Abstract

Using panel data from nine European countries over the period 1970 to 2007, we examine the impact of information and communication technology (ICT) on the demand for older workers (aged 50 and over). We find evidence of a decrease in demand for older workers in the 1970s and 1980s. It can be argued that the impact of ICT on demand for older workers is skill-biased. However, the skill-biased demand for older workers is mainly reflected in the skill-biased changes in employment shares rather than relative wages. There is some evidence of a gradual deskilling of older workers. We find that labour market institutions such as the national minimum wage, social pacts on wage issues and union density mostly benefit skilled older workers, while coordination of wage setting, extension of collective agreements, social pacts on pensions and centralisation of wage bargaining can alleviate the adverse effects of skill-biased technological change.

• Item Type: MPRA Paper
• Language: English
• Keywords: Earnings, Older workers, Information and Communication Technology, Labour Market Institutions
• Subjects: J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J21 - Labor Force and Employment, Size, and Structure; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

References

Acemoglu, D. (1998). Why do new technologies complement skills? Directed technical change and wage inequality. Quarterly Journal of Economics 113, 1055-1089.

Acemoglu, D. (2003). Cross-country inequality trends. The Economic Journal 113, F121-F149.

Acemoglu, D. (2015). Localised and biased technologies: Atkinson and Stiglitz’s new view, induced innovations, and directed technological change. Economic Journal, 583, 443-463.

Acemoglu, D., Aghion, P., and Violante, G.L. (2001). Deunionization, Technical Change, and Inequality. Carnegie-Rochester Conference Series on Public Policy 55, 1: 229-264.

Acemoglu, D., Autor, D.H. (2011). Skills, tasks and technologies: implications for employment earnings. In O. Ashenfelter and D. Card (eds.), The Handbook of Labour Economics. Amsterdam: Elsevier, 1043-1171.

Adermon, A., Gustavsson, M. (2015). Job polarization and task-biased technological change: Evidence from Sweden, 1975-2005. The Scandinavian Journal of Economics, 117, 878-917.

Afonso, Ó. (2016). Effects of labour-market institutions on employment, wages, R&D intensity and growth in 27 OECD countries: from theory to practice. Economic Modelling, 53, 48-62.

Ammermuller A., Lucifora C., Origo F. and Zwick T. (2010). Wage flexibility in regional labour markets: Evidence from Italy and Germany, Regional Studies 44, 401-21

Avdagic, S., Rhodes, M., and Visser, J. (2011), editors. Social Pacts in Europe. Oxford University Press.

Anger, S. (2011). The cyclicality of effective wages within employer–employee matches in a rigid labor market. Labour Economics 18(6), 786-797.

Aubert, P., E. Caroli and Roger, M. (2006). New technologies, organization and age: firm-level evidence. The Economic Journal 116(509), F73-F93.

Autor, D.H., (2015). Why are there still so many jobs? The history and future of workplace automation. Journal of Economic Perspectives, 29, 3-30.

Autor, D. and Dorn, D. (2009). This job is ‘getting old’: Measuring changes in job opportunities using occupational age structure. American Economic Review: Papers and Proceedings, 99, 45-51.

Autor, D.H., Dorn, D. (2013). The growth of low-skill service jobs and the polarization of the US labour market, American Economic Review, 103, 1553-1597.

Autor, D., Katz, L and Krueger, A. (1998). Computing Inequality: Have Computers Changed the Labor Market? Quarterly Journal of Economics CXIII, 1169-1214.

Autor, D., Levy, F. and Murnane, R, J. (2003). The skill content of recent technological change: an empirical exploration. Quarterly Journal of Economics 118(4), 1179-333.

Baltagi B. H. And Blien U. (1998). The German wage curve: evidence from the IAB employment sample, Economics Letters 61, 135-42.

Barros, C. P., Guironnet, J. P., and Peypoch, N. (2011). “Productivity growth and biased technical change in French higher education.” Economic Modelling, 28(1-2), 641-646.

Basu, S., Fernald, J.G., Oulton, N., Srinivasan, S. (2003). The case of the missing productivity growth: or does information technology explain why productivity accelerated in the US but not in the UK. NBER Macroeconomics Annual, 18: 9-63.

Baum, C.F., Schaffer, M.E., Stillman, S. (2003). “Instrumental variables and GMM: estimation and testing.” The Stata Journal 3 (1), 1-31.

Becker, G., (1964). Human Capital: A Theoretical and Empirical Analysis, With Special Reference to Education, New York: Columbia University Press.

Berman, E., Bound J., Griliches, Z., (1994). Changes in the demand for skilled labour within US manufacturing Industries: Evidence from the Annual Survey of Manufacturers. Quarterly Journal of Economics 109, 365-367.

Blau, D. and Shvydko, T. (2011). Labor Market Rigidities and the Employment Behavior of Older workers. Industrial and Labor Relations Review, 64 (3), 464-484

Bogliacino, F., Piva, M., and Vivarelli, M. (2012). R&D and employment: An application of the LSDVC estimator using European microdata. Economics Letters, 116(1), 56-59.

Bonanno, G. (2016), ICT and R&D as inputs or efficiency determinants? Analysing Italian manufacturing firms (2007-2009), Eurasian Business Review, 6(3), 383-404.

Brouwer, E., Kleinknecht, A., Reijnen, J.O.N. (1993). Employment growth and innovation at the firm level: an empirical study. Journal of Evolutionary Economics 3, 153-159.

Brynjolfsson, E. and McAfee, A. (2014). The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. New York: W.W. Norton.

Buttner T. (1999) The effect of unemployment, aggregate wages, and spatial contiguity on local wages: an investigation with German district level data, Papers in Regional Science 78, 47-67.

Card, D. and Lemieux, T. (2001), “Can Falling Supply Explain the Rising Return to College for Younger Men?” Quarterly Journal of Economics 705-46

Carmichael, F. and Ercolani, M.G. (2014). “Age-training gaps in the European Union.” Ageing & Society 34, 129-156.

Caroli, E. and van Reenen, J. (2001). Skill-biased organisational change? Evidence from a panel British and French establishments. Quarterly Journal of Economics 116(4), 1449-1492.

Caselli, F., (1999). “Technological revolutions.” American Economic Review, 89, 78-102.

Caselli, F., and W. J. Coleman, (2006). The world technology frontier. American Economic Review, 96(3), 499-522.

Chun, H., (2003). Information technology and the demand for educated workers: Disentangling the impacts of adoption versus use. The Review of Economics and Statistics 85, 1-8.

Ciriaci, D., Moncada-Paternò-Castello, P., and Voigt, P. (2016). Innovation and job creation: A sustainable relation? Eurasian Business Review, 6, 189-213.

Conti, M. and Sulis, G. (2016). Human capital, employment protection and growth in Europe. Journal of Comparative Economics 44(2), 213-230.

Daveri, F. and Maliranta, M. (2007), Age, seniority and labour costs: lessons from the Finnish IT revolution, Economic Policy, 117-175.

Dustmann, C., Ludsteck, J., and Schoberg, U. (2009). Revisiting the German Wage Structure.? Quarterly Journal of Economics 124 (2), 843-81.

Evangelista, R., Vezzani, A. (2012). The impact of technological and organizational innovations on employment in European firms. Industrial and Corporate Change, 21, 871-899.

Fraumeni, B.M. (1997), The Measurement of Depreciation in the U.S. National Income and Product Accounts, Survey of Current Business, Available at https://www.bea.gov/scb/account_articles/national/0797fr/maintext.htm

Frey, C.B., and Osborne, M.A. (2013). The future of employment: how susceptible are jobs to computerisation? Oxford University Working Paper, September 17, Oxford.

Garnero, A., Stephan, K. and Rycx, F. (2014), Minimum wage systems and earnings inequalities: Does institutional diversity Matter? European Journal of Industrial Relations, 1-16.

Goos, M, and Manning, A. (2007). Lousy and Lovely Jobs: The Rising Polarization of Work in Britain. Review of Economics and Statistics 89 (1): 118–33.

Goos, M., Manning, A., Salomons, A. (2014). Explaining job polarization: Routine-biased technological change and offshoring, The American Economic Review, 104, 2509-2526.

Goldin, C., Katz, L.F., (1998). The origins of technology-skill complementarity. Quarterly Journal of Economics, 113, 693–732.

Goux, D. and Maurin, E., (2000). The decline in demand for unskilled labor; an empirical analysis method and its application to France. Review of Economics and Statistics 82, 596-607.

Greenhalgh, C., Longland, M., Bosworth, D., (2001). Technological activity and employment in a panel of UK firms. Scottish Journal of Political Economy 48, 260–282.

Hall, B.H., Lotti, F., Mairesse, J. (2008). Employment, innovation, and productivity: evidence from Italian microdata. Industrial and Corporate Change 17, 813–839.

Hamilton J. (1994) Time Series Analysis. Princeton University Press, Princeton, NJ.

Harrison, R., Jaumandreu, J., Mairesse, J., Peters, B. (2014). Does innovation stimulate employment? A firm-level analysis using comparable micro-data from four European countries. International Journal of Industrial Organization, 35, 29-43.

Hayashi, F. (2000). Ecnometrics. Princeton, NJ: Princeton University Press.

Heckman, J., Stixrud, J., Urzua, S., 2006. The effects of cognitive and noncognitive abilities on labor market outcomes and social behaviour. Journal of Labor Economics 24 (3), 411–482.

Heywood, J and Siebert, S.W. (2009) Understanding the Labor Market for Older Workers: A Survey. IZA DP No. 4033.

Hurd, M. (1996). “The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers”, in D Wise (ed.), Advances in the Economics of Aging. Chicago: The University of Chicago Press.

Iversen, T. (1999). Contested Economic Institutions. The politics of macroeconomics and wage bargaining in advanced democracies. Cambridge, Mass., Cambridge University Press.

Jansen, G. (2014). Effects of Union Organization on Strike Incidence in EU Companies. Industrial and Labor Relations Review, 67(1), P60-85

Jorgenson, D.W., Landefeld, J.S., and Nordhaus, W.D. (eds) (2006). A New Architecture for the U.S. National Accounts, NBER Studies in Income and Wealth, Volume 66, The University of Chicago Press.

Kahn, J., Lim, J., (1998), Skill labour augmenting technical progress in U.S. manufacturing, Quarterly Journal of Economics 113, 1281–1308.

Kawaguchi, D. and Mori, Y. (2014), Winning the race against technology, Bank of Japan Working Paper No.14-E-5, Bank of Japan, Tokyo 103-0021, Japan.

Kristal, T. and Cohen, Y. (2016), “The causes of rising wage inequality: The race between institutions and technology.” Socio-Economic Review, 1-26.

Kenworthy, L. (2001). “Wage-Setting Institutions: A survey and assessment.” World Politics 54, 57-98.

Lachenmaier, S. and Rottmann, H. (2011), Effects of innovation on employment: A dynamic panel analysis. International Journal of Industrial Organization, 29, 210-220.

Lewis, E., (2011) “Immigration, Skill Mix, and Capital Skill Complementarity,” Quarterly Journal of Economics 126 (2), 1029-1069

Machin, S., Van Reenen, J. (1998). “Technology and changes in skill structure: evidence from seven OECD countries.” Quarterly Journal of Economics 113, 1215-1244.

Mallick, S.K., and Sousa, R.M. (2017) The Skill Premium Effect of Technological Change: New Evidence from the US Manufacturing Sector, International Labour Review, forthcoming.

Marouani, M.A. and Nilsson, B. (2016), “The labor market effects of skill-biased technological change in Malaysia.” Economic Modelling 57, 55-75.

Mitra, A., Jha, A. (2015). Innovation and employment: A firm level study of Indian industries. Eurasian Business Review, 5, 45-71.

Messinis, G., and Ahmed, A.D. (2013). Cognitive skills, innovation and technology diffusion. Economic Modelling, 30(1), 565-578.

Michaels, G., Natraj, A. and Van Reenen, J. (2014). Has ICT Polarized Skill Demand? Evidence from Eleven Countries over Twenty-Five Years. Review of Economics and Statistics 96(1), 60-77.

Mincer, J. (1974). Schooling, Experience and Earnings, New York: National Bureau of Economic Research.

Mitchell, M. F., (2005). Specialization and the skill premium in the 20th Century. International Economic Review, 46(3), 935-955.

O’Mahony, M. and Peng, F. (2009). “Skill bias, age and organizational change,” MPRA Paper 38767.

O’Mahony, M., Robinson, C. and Vecchi, M. (2008). The Impact of ICT on the Demand for Skilled Labour: A Cross-Country Comparison, Labour Economics, 15(6), 1435-1450.

O’Mahony, M. and Timmer, M.P. (2009). Output, Input and Productivity Measures at the Industry Level: the EU KLEMS Database. The Economic Journal 119 (June), F374-F403.

O’Mahony, M. and Van Ark, B. (2003). Eds., EU Productivity and Competitiveness – An Industry Perspective: Can Europe resume the Catching-up Process, European Commission Publication.

Pianta, M., (2005). Innovation and employment. In J. Fagerberg, D. Mowery and R.R. Nelson (eds), Handbook of Innovation. Oxford: Oxford University Press, 568-598.

Piva, M., Vivarelli, M., (2005). Innovation and employment: evidence from Italian microdata. Journal of Economics 86, 65-83.

Peng, F., and Kang, L. (2013). Labor Market Institutions and Skill Premiums: An Empirical Analysis on the UK, 1972-2002, Journal of Economic Issues, 47(4), 959-982.

Peng, F. and Siebert, W.S. (2008). Real Wage Cyclicality in Italy. Labour 22(4), 569-591.

Pierrard, O., and Sneessen, H. (2003). Low-skilled unemployment, biased technological shocks and job competition. IZA Discussion Paper 784, Institute for the Study of Labour. Available at http://ssrn.com/abstract=412490

Pierre, G., and Scarpetta, S. (2006). Employment protection: do firms' perceptions match with legislation? Economics Letters 90(3), 328-334.

Piore, M.J. (1979). Birds of Passage. Cambridge, UK: Cambridge University Press.

Ruiz-Arranz, M. (2004). Wage inequality in the US: capital-skill complementarity vs skill-biased technical change. IMF mimeo.

Stiroh, K.J., (2002). Information technology and the U.S. productivity revival: what do the industry data say? American Economic Review 92, 1559-1576.

Schone, P. (2009). New technologies, new work practices and the age structure of the Workers, Journal of Population Economics 22(3), 803-826.

Smolny, W. (1998). Innovations, prices and employment: a theoretical model and an empirical application for West German manufacturing firms. Journal of Industrial Economics 46, 359-381.

Spitz-Oener, A. (2006). Technical Change, Job Tasks, and Rising Educational Demands: Looking Outside the Wage Structure. Journal of Labor Economics 24 (2), 235-70.

Stock, J.H., and Watson, M. (2014). Introduction to Econometrics. 3rd edition. Boston, MA: Addison- Wesley

Timmer, M., Moergastel, T. V., Stuivenwold, E., O’Mahony, M., Kangasniemi, M., and Soo, A., et al. (2007a). EUKLEMS growth and productivity accounts version 1. 0 part 1: Methodology.http://www.euklems.net/data/EUKLEMS_Growth_and_Productivity_Accounts_Part_I_Methodology.pdf

Timmer, M., Moergastel, T. V., Stuivenwold, E., O’Mahony, M., Kangasniemi, M., and Soo, A., et al. (2007b). EUKLEMS growth and productivity accounts version 1. 0 part 2: Sources by country. http://www.euklems.net/data/EUKLEMS_Growth_and_Productivity_Accounts_Part_II_Sources.pdf

Van Ark, B., O’Mahony, M. and Timmer, M.P. (2008). “The productivity gap between Europe and the United States.” Journal of Economic Perspectives 22(1), 25-44.

Van Reenen, J., (1997). Employment and technological innovation: Evidence from U.K. manufacturing firms. Journal of Labour Economics, 15, 255-284.

Visser, J. (2015). ICTWSS Data base. Version 5.0. Amsterdam: Amsterdam Institute for Advanced Labour Studies AIAS. October 2015. Open access database (available at: www.uva-aias.net/208).

Vivarelli, M. (2014). Innovation, employment and skills in advanced and developing countries: A survey of economic literature. Journal of Economic Issues, 48, 123-154.

Vivarelli, M. and Pianta, M. (2000). The Employment Impact of Innovation: Evidence and Policy. London: Routledge.

Waldman, D. A. and Avolio, B. J. (1986). A meta-analysis of age differences in job performance, Journal of Psychology 71, 33-38

Wooden, M., van den Heuvel, A., Cully, M., and Curtain, R. (2001). “Barriers to training for older workers and possible policy solutions”, Flinders National Institute of Labour Studies, University of South Australia. Available at http://www.dest.gov.au/archive/iae/documents/olderworkers/olderworekrsv4.pdf

Zhou, J. (2006). Reforming employment protection legislation in France. IMF Working Paper, no.108.