The Effects of R&D Intensity in the Industrial Sectors on Wage Distribution in the United States

The rising wage inequality over the past decades is associated with an increase in the use of technology in the workplace. There is wide agreement that skill-biased technological change (SBTC) has been an important determinant of rising inequality over the last several decades. According to this point of view, extensive skill biased technological change causes that skilled workers become more productive and their wages rise, but the wages of unskilled workers decline. A few number of previous studies show that wage rates in industries with higher technological change is higher than those with the lower change, and also find that the wage gaps within industry become wider as the technological change is larger. In empirical design, it is challenging to find a perfect measure of the technological change in the industries. By exploiting patent application data as a proxy for technological change across 194 industries, this study sheds new light on the source of the wage structure changes over the last two decades. Previous studies concentrated only on the manufacturing sectors, but this study extends across the entire industries by using Wellesley Technology Concordance (WTC) and Silverman’s International Patent Classification - U.S. SIC Concordance system. To estimate change in the wage structure, this study uses 1990 and 2000 Census Integrated Public Use Micro Sample (IPUMS) in 5 percent sample. This study begins with examining the SBTC hypothesis in industrial sectors which have different levels of technological change. The results of this study are as follows. First, technological change causes the increase in the earnings of highly educated workers relative to less educated workers. Second, it harms older skilled workers. Therefore, I conclude that wage inequality is strongly tied to the technological change. During the compressed growth in the 1980s, South Korea achieved rapid growth as well as equitable income distribution. Previous studies point out rapid population aging, labor market institute, and market structure as a main source of rising income inequality. Recently due to the more rapid technological change, many people believe that the fourth industrial revolution is coming, which implies the income inequality could worsen. In this regard, policies on the human capital would be more important to reduce the income inequality.