Collaborative Research: Measuring the Bias of Technological Change

Trustees Of Boston University, Boston

Investigators

Abstract

When technological change occurs, it can increase the productivity of capital, labor, and the other factors of production in equal terms or it can increase the productivity of some factor of production more rapidly than that of others. Whether technological change is biased in this way is an empirical question that is central to economics. Yet, the existing evidence on the bias of technological change is scarce. Factor-neutral (also called Hicks-neutral) technological change is assumed, either explicitly or implicitly, in most of the standard techniques for measuring productivity, ranging from classic productivity decompositions to recent structural estimators for production functions. In contrast, most research on economic growth assumes labor-augmenting technological change, sometimes in the more specific form of human capital accumulation. More generally, the bias of technological change influences how goods and services are produced and shapes (as vividly illustrated by the history of technology) the evolution of individual workplaces, firms, and entire industries. In this way, the bias determines which societal groups are the winners and which are the losers and thus their willingness to embrace technological change. In this research project we combine recently available firm-level panel data with advances in econometric techniques to directly assess the bias of technological change. We develop a general framework for estimating production functions that enables us to measure, at the level of the individual firm, how much of technological change is factor neutral and how much of it is labor augmenting. Enlarging the body of evidence from a microeconomic point of view is a step towards understanding (and ultimately influencing) the sources of technological progress and its impact on society. We further relate the speed and direction of technological change to firms' R&D activities, a natural lever for encouraging technological progress.