Events at CERGE-EI

Jan Bena, Ph.D.

Sauder School of Business, The University of British Columbia, Canada

Authors: Jan Bena and Elena Simintzi

Abstract: We study how the change in the price of labor affects the direction of technological change using a novel measure decomposing innovations into products (new goods) and processes (lower production cost). Using the 1999 U.S.-China bilateral agreement as a shock that lowered effective labor cost, we find that U.S. firms operating in China decrease their process to total innovations ratio by 9% and that this adjustment is driven by lower process innovation. We obtain the same results using a staggered loosening of restrictions on foreign ownership across industries in China over 1995-2012. This evidence suggests that cheap abundant labor substitutes for labor-saving technological innovation.

Full Text:  “Labor-induced Technological Change: Evidence from Doing Business in China”