Economics of Innovation
Sharing the surplus

Workers clearly benefit as consumers from technological advances that deliver an increased variety of goods at progressively lower prices. Recent microeconometric studies of North America have also found that technological innovation boosts wages, and that skilled workers obtain higher proportionately greater returns, which accounts in part for the dramatic rise in income inequality in the 1980s. In Discussion Paper No. 881, John Van Reenen investigates whether such `innovative wage differentials' exist in the UK using data from the 1984 Workplace Industrial Relations Survey (WIRS), which asked senior managers in more than 2,000 establishments with 25 or more employees whether they had introduced advanced technical change in the previous three years. He finds that innovating plants tended to be relatively large and had also lost above-average proportions of employees during the recession. They also displayed above-average variance in profitability (suggesting that adoption of new technologies entailed risk), and they tended to be more unionized, male-dominated and skilled than the average plant.

Van Reenen calculates raw innovative mark-ups by assigning mid-points to ten wage bands to show that innovation led to wage rises for all skill levels and sectors which were were higher in the unionized sector and clearly ranked by skill. He confirms this by estimating wage equations and calculating innovation differentials of some 5-7%; these are robust to controls for skill level, workplace features, industry and regional effects, and simultaneity. Skilled workers achieved greater wage gains than their less skilled counterparts for all available measures of technical change. Evidence that unionization enables workers to share in `technological plunder' is weaker: the signs on the coefficients suggest that unionized workers reap a greater share of the innovative surplus but the result is not statistically significant. Mark-ups are largest for workers in plants in which unions are recognized but whose density is less than 100%.

Getting a Fair Share of the Plunder? Technology, Skill and Wages in British Establishments
John Van Reenen

Discussion Paper No. 881, January 1994 (HR)