This paper argues that the effect of openness to trade on process innovations and skill premia importantly depends on the structure of labor markets in developed countries. Openness to trade with less developed countries is often modelled as a fall in the relative price of unskilled-labor intensive goods. We show within the model of Acemoglu (2003b) that such a fall in the relative price can make wage floors more binding and trigger costly process innovations that increase the productivity of unskilled workers. Empirical evidence using an industry panel for the US and Germany in the 1970s to 1990s supports this hypothesis: (i) embodied technology change seems distorted towards unskilled-labor intensive industries in Germany where wage floors are more important and (ii) embodied technology change in the 1980s is associated with an increase of the share of skilled labor in the wage bill of 15 percentage points in the US whereas the corresponding increase in Germany is much smaller at 3 percentage points.
Microeconomic theory shows that only under certain conditions higher background risk increases the propensity to insure against independent marketable risks. We provide empirical evidence for the case of labor income risk and car insurance in the UK. The main result is that households with higher labor income risk spend more on insurance. This finding is consistent with microeconomic theory if the utility function is of the HARA type. Moreover, we find that households spend more on insurance if they participate in the stock market.
Empirical evidence suggests that dismissal costs are negatively associated with R&D intensity across countries but positively within countries over time. This evidence can be rationalized theoretically with a negative entry effect and a positive innovation effect for incumbent firms.
Not available in German. The paper summerizes some recent developments in microeconometrics with respect to methods for estimation and inference in non-linear models based on cross-section and panel data. In particular we discuss recent progress in estimation with conditional mom ent restrictions, simulation methods, semiparametric methods, as well as specification tests. We use the binary cross-section model to illustrate the application of some of the theoretical results.
