Events at CERGE-EI

Prof. Marcel Timmer

University of Groningen, The Netherlands

Authors: Marcel P. Timmer and Xianjia Ye

Abstract: Current analyses of factor income shares suffer from the observational equivalence of offshoring and factor-biased technical change. In this paper we propose a novel empirical approach that allows for much sharper identification based on an analysis of global production with trade-in-tasks. We model the production process of a final product as an array of tasks that can be performed by domestic as well as foreign factors of production. As in Grossman and Rossi-Hansberg (2008) offshoring is modelled through its effect on factor prices and FBTC is defined as a decline in the relative use of a factor, controlling for relative factor price movements. Based on new information about the factor content of imported intermediates we find declining global prices for low-skilled workers and capital relative to medium- and high-skilled workers. We document also increasing income shares for capital and high-skilled workers in the final output value of 12 manufacturing product groups from 21 advanced countries during 1995-2007. Based on this information we estimate substitution elasticities and factor-biased technical change in a flexible (translog) cost function framework. We find strong evidence of technical change being biased against low- and medium-skilled workers, and in favour of high-skilled workers and capital. The advance of information technology appears to be an important channel and is particularly biased against medium-skilled workers. These findings are found to be robust in various alternative empirical settings.

Full Text:  “Offshoring, Biased Technical Change and the Increasing Capital Share: an Analysis of Global Manufacturing Production”