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Product Cycles, Innovation and Relative Wages in European Countries
This paper attempts to bridge the gap between the theoretical literature examining how innovation affects income across countries and the empirical literature examining how relative wages within a country change over time. We test the hypothesis that the relative wage between workers in high-and low-technology industries within a country is a function of the rate of domestic innovation and innovation abroad. To test this hypothesis data for 7 European countries for the years 1971-1988 are used. The empirical results show that the relative rates of innovation (as<br /> measured by the ratio of patents to high-tech workers) are significant determinants of the relative wage.