UNIVERSITÀ POLITECNICA DELLE MARCHE FACOLTÀ DI ECONOMIA “GIORGIO FUÀ” PhD in Economics XXXI cycle PhD Dissertation STRUCTURAL CHANGE, TECHNOLOGY AND INCOME DISTRIBUTION PhD candidate Andrea Coveri Supervisor: PhD Coordinator: Prof. Alberto Russo Prof. Riccardo Lucchetti Prof. Mario Pianta Table of Contents Summary ……………………………………………………………………………………….………….… 7 Chapter 1. Structural Change: Theory and Data 1. Introduction .................................................................................................................................................. 13 2. Investigating structural change: a review ..................................................................................................... 14 2.1 The foundations ...................................................................................................................................... 14 2.2 The Neoclassical approach ..................................................................................................................... 16 2.3 The Post-Keynesian approach ................................................................................................................ 17 2.4 The Neo-Schumpeterian approach ......................................................................................................... 23 3. Combining structural change and evolutionary perspectives ....................................................................... 25 4. Data: the Sectoral Innovation Database ........................................................................................................ 29 4.1. The SID ................................................................................................................................................. 29 4.2 Data for structural analysis: the variables ............................................................................................... 29 4.3 The time structure of the database .......................................................................................................... 31 Chapter 2. The Determinants of Structural Change: Demand, Technology and Offshoring 1. Introduction .............................................................................................................................................. 35 1.1 Manufacturing vs. Service industries ..................................................................................................... 35 1.2 High-tech vs. Low-tech industries .......................................................................................................... 36 1.3 Core vs. Peripheral countries .................................................................................................................. 36 1.4 Upswing vs. Downswing of business cycle ............................................................................................ 37 2. Data and descriptive evidence ...................................................................................................................... 39 2.1 The economic performance of countries ................................................................................................ 40 2.2 The sectoral composition of the economies............................................................................................ 42 2.3 Innovation patterns and productive specialization ................................................................................. 46 2.4 Innovation and economic growth ........................................................................................................... 50 2.5 Demand and economic growth ............................................................................................................... 53 2.6 The offshoring dynamics ........................................................................................................................ 55 2.7 Offshoring and economic growth ........................................................................................................... 58 3. The model ..................................................................................................................................................... 61 3.1 The structural change equation ............................................................................................................... 61 3.2 Econometric strategy .............................................................................................................................. 62 3 4. Results .......................................................................................................................................................... 63 5. Conclusions .................................................................................................................................................. 76 Appendix of Chapter 2 ..................................................................................................................................... 79 Chapter 3. Structural Dynamics of Income Distribution: Technology, Wages and Profits 1. Introduction .............................................................................................................................................. 85 2. State of the art and proposed approach ..................................................................................................... 86 2.1 Labour productivity ................................................................................................................................ 89 2.2 Innovation ............................................................................................................................................... 90 2.3 Offshoring............................................................................................................................................... 91 2.4 Union density .......................................................................................................................................... 93 3. The database ............................................................................................................................................. 94 4. Descriptive evidence on income distribution dynamics ........................................................................... 96 4.1 The role of technology ............................................................................................................................ 97 4.1.1 Technology and income distribution patterns .................................................................................. 98 4.1.2 Technology and profits .................................................................................................................... 99 4.1.3 Technology and wages .................................................................................................................. 102 4.2 The role of offshoring ........................................................................................................................... 104 4.3 The role of trade unions ........................................................................................................................ 108 5. A simultaneous model for the dynamics of profits and wages ............................................................... 110 5.1 The wage equation ................................................................................................................................ 110 5.2 The profit equation ............................................................................................................................... 111 5.3 Econometric strategy ............................................................................................................................ 112 6. Results .................................................................................................................................................... 114 6.1 The estimated wage equation ............................................................................................................... 114 6.2 The estimated profit equation ............................................................................................................... 115 6.3 The wage-profit SURE model .............................................................................................................. 116 6.4 Further evidence using a different product innovation proxy .............................................................. 120 6.4.1 Results of the equation-by-equation estimation strategy ............................................................... 120 6.4.2 Results of the wage-profit SURE model ....................................................................................... 121 7. Conclusions ............................................................................................................................................ 125 Appendix of Chapter 3 ................................................................................................................................... 127 A.1 The wage equation: robustness checks ................................................................................................ 127 A.2 The profit equation: robustness checks ................................................................................................ 131 4 Chapter 4. A Sequential Model of Income Distribution 1. Introduction ...........................................................................................................................................