By linking different innovation indicators and education to the polarisation of wages by skill level within industries, the paper
aims to find out the importance of sectoral structure: industry analysis
analysis of levels of polarisation (not change)
so to test the relevance of technology and educational factors in polarisation of wage

Croci Angelini, Elisabetta

Farina, Francesco

Pianta, Mario

DSpace a Parma

23/04/2008 1
Innovation and wage polarisation
in European industries
Elisabetta Croci Angelini, University of Macerata
Francesco Farina, University of Siena
Mario Pianta, University of Urbino
AISSEC conference, Parma, June 21-23 2007
23/04/2008 2
Aims of the paper
 by linking different innovation indicators and 
education to the polarisation of wages by skill 
level within industries
 find out the importance of sectoral structure: 
industry analysis
 analysis of levels of polarisation (not change)
 so to test the relevance of technology and 
educational factors in polarisation of wages
23/04/2008 3
Skill biased technical change
(D. Acemoglu)
 “technical change favors more skilled workers, 
replaces the unskilled, exacerbates inequality”
 Excess demand for the High-Skilled wage up
 The increasing supply of educated workers is 
outweighted by increasing demand for high skill 
workers
 Excess supply for the Low-Skilled wage down
 Decreasing demand for the unskilled
23/04/2008 4
Moving beyond the skill bias view
 Rough definition of skills in the literature
(blue/white collar, years of education …)
 Need to look with greater detail into 
skill structure, education and 
different technology factors
 Need to consider labour markets
dynamics and the role of 
employment polarisation
23/04/2008 5
The role of technology
 upgrading skills is complementary to ICTs
wage dispersion 
 general diffusion of new technologies  wage 
compression
 effect of ICTs and new processes on blue 
collars:
 labour saving  lower wage bills
 upskilling higher average wage
 mismatch between acquired skills and 
corresponding wage (overskill?)
23/04/2008 6
The role of education
 Higher shares of university education
wage dispersion
 Higher shares of secondary education 
wage compression
23/04/2008 7
The role of labour markets
A faster growth of employment can be associated to:
 wage dispersion by skill within industries (more 
dynamic industries create jobs that rise the high and 
reduce the low wages)
 wage compression (new jobs lift the middle wages)
A higher polarisation of employment by skill can be  
associated  to: 
 wage dispersion (skill premium effect)
 wage compression (quantity effect)
Importance of national labour market institutions and 
welfare systems
23/04/2008 8
Empirical patterns
 structure of employment in high/low
innovation industries (manufacturing and 
services)
 skill structure in EU countries
 innovation intensity of industries and 
employment changes
 wage inequality and employment rates
23/04/2008 9
The analysis of wage polarisation
within industries
 Sectoral specificites 11 sectors
 Country patterns 7 EU countries
 Manufacturing vs services 6:5 
 High vs low innovation 5:6
23/04/2008 10
COUNTRIES ECHP
France 3576
Germany 2971
Italy 4302
United Kingdom 3465
the Netherlands 2480
Spain 4080
Portugal 2795
DA l Manufacture of food products, beverages and tobacco
DB+DC l Manufacture of textiles, clothing and leather products
DD+DE l Manufacture off wood and paper products;publishing and printing
DF-DI h Manufacture of coke, refined petroleum/chemicals/rubber & plastic/… products etc…
DJ+DK h Manufacture of metal products, machinery and equipement n.e.c.
DL-DN h Other manufacturing
G l Wholesale and retail trade; repair of motor vehicles, motorcycles and personal/household goods
H l Hotels and restaurants
I l Transport, storage and communication
J h Financial intermediation
K h Real estate, renting and business activities
SECTORS
23/04/2008 11
Methodology
 Measure of wage polarisation:
ratio of average wages of managers plus 
professionals and white collars to blue collars 
 Sources: ECHP (wage, skills, education data) 
database 1994 aggregated by 11 industries and 
matched to CIS (innovation) and STAN 
(employment) databases
 Strength: more detailed, integrated data
 Weakness: heterogenous sources
23/04/2008 12
employees in "high tech" sectors
0.0
0.1
0.2
0.3
0.4
Germany France Italy UK NL Spain Portugal
manufacturing services
employees in low  tech sectors
0.0
0.1
0.2
0.3
0.4
0.5
Germany France Italy UK NL Spain Portugal
manufacturing services
Fig.1: Percent composition of jobs in EU countries
23/04/2008 13
Fig. 2: The composition of jobs by skill
France
0
0.05
0.1
0.15
0.2
0.25
low manuf high manuf low serv high serv
man
white
blue
Germany
0
0.05
0.1
0.15
0.2
0.25
low manuf high manuf low serv high serv
man
white
blue
Italy
0
0.05
0.1
0.15
0.2
0.25
low manuf high manuf low serv high serv
man
white
blue
United Kingdom
0
0.05
0.1
0.15
0.2
0.25
low manuf high manuf low serv high serv
man
white
blue
23/04/2008 14
Fig.2: Percent composition of jobs in countries
Overall, the highest percentage of jobs is:
 Low Technology Manufacturing: Blue collars
 Low Technology Services: White collars
 High Technology Manufacturing
& Services: Managers
 North European countries: larger percentages of Managers in 
High Technology (Manufacturing and Services) with respect to
South European countries
23/04/2008 15
Fig.3a Employment rates and wage inequality in European countries 1979-2000
40
45
50
55
60
65
70
75
80
85
0.1 0.15 0.2 0.25 0.3 0.35
wage inequality 
e
m
p
l
o
y
m
e
n
t
 
r
a
t
e
s
 
 
Scandinavian countries
Mediterranean countries 
Continental countries
AngloSaxon countries
SP95
DE00
FI95NL91
LU00
FR94
SP00
NL94
NL99
DE84
UK99
DE89
DE94
23/04/2008 16
Fig.3b Working ratios and Gini Net Wages in the EU-15 (1994, 1997, 2001)
0.25
0.3
0.35
0.4
0.45
0.5
0.55
0.6
0.65
0.7
0.2 0.25 0.3 0.35 0.4 0.45
giniw ages
w
o
r
k
i
n
g
 
r
a
t
i
o
dk8
dk4 dk1
nl1
it1it4
it8
be1
se4
be4
fi4
be8 de1
ie1
ie4
es1
es4
uk1
lu1
fr1
gr1
gr4
gr8
pt1
es8
pt4
uk4
se8
at8
de4
nl4
at4
pt8
ie8
nl8
lu8
fi8
de8
fr8
uk8
fr4
23/04/2008 17
Employees’ average wages
Germany
0.0
0.5
1.0
1.5
2.0
low manuf high manuf low serv high serv
man
white
blue
Italy
0.0
0.5
1.0
1.5
2.0
low manuf high manuf low serv high serv
man
white
blue
France
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
low manuf high manuf low serv high serv
man
white
blue
United Kingdom
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
low manuf high manuf low serv high serv
man
white
blue
23/04/2008 18
The model
WPolij = aInn ij – bDiff ij + cLmkt ij + cost ij +e ij
 WPol = average wages of (Man+WhC)/(BlC)
 Inn share of
 innovative firms or
 employees with university education
 Diff
 Expenditure for innovation per employee (total/for 
machinery only)
 share of employees with secondary education
 share of employees overskilled
 Lmkt
 change in employment 1990-94
 (managers+white collars)/(blue collars) 
23/04/2008 19
Econometric method
 Weighted regression (by total employment
1994, leaving the same total variance)
 Dummies for industry, manufact/services
regional dummies (never relevant)
23/04/2008 20
Dispers.
Compr.
Dispers.
Table 1 - The determinants of wage polarisation in European industries 
1 2 3 4 5 6
Wage dispersion effects of technology and skills
Share of innovative firms 1,517 1,330 1,331
(2.28)** (2.07)** (2.07)**
Share of employees with university degree 3,468 2,575 3,108
(4.46)*** (3.61)*** (4.13)***
Wage compression effects of technology and skills
Total expenditure for innovation per employee -0.119
(-2.93)***
Expenditure for innov.-related machinery per empl. -0.273 -0.295
(-1.90)* (-2.10)**
Share of employees with secondary education -1,545
(-1.76)*
Share of employees overskilled in current jobs -2,558 -2,225 -2,558
(-2.08)** (-2.27)** (-2.08)**
Wage dispersion effects of labour markets
Change in employment, 1990-94 0.058 0.048 0.06
(2.23)** (1.78)* (1.88)*
Ratio of managers+white collars to blue collars  0.036 0.038 0.015 0.038
(4.15)*** (4.69)*** (1.89)* (4.69)***
Constant 2,582 2,590 2,712 3,526 3,636 3,526
(17.15)*** (15.65)*** (6.92)*** (5.80)*** (6.82)*** (5.80)***
Adjusted R-squared 0.26 0.2 0.25 0.25 0.28 0.249
Nobs 58 57 68 68 68 68
t-statistics in brackets. Significance levels: *90%, **95%, ***99%
23/04/2008 21
Results
 Diversity of effects of technology: 
innovation vs diffusion
 Diversity of education : high vs. medium
 Job dynamics is linked to wage polarisation
 Skill polarisation is linked to wage 
polarisation


Innovation and wage polarisation in European industries

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