Defensive Innovations

No 454, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Defensive innovations in developed countries can explain the empirical phenomenon that openness towards trade with less-developed countries does not necessarily induce a substantial increase in the wage differential and trade volumes. Building on step-by-step innovations as introduced by Aghion et al. (2001), we show that defensive innovations can result from private incentives. In particular, minimum wages can induce defensive innovations which then redistribute income away from workers. Suggestive empirical evidence is consistent with the implications of defensive innovations for wage differentials, trade volumes and the sectorial composition within and across OECD countries.

Keywords: Step-by-step innovations; minimum wage; openness (search for similar items in EconPapers)
JEL-codes: F1 F4 O3 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2002-03
New Economics Papers: this item is included in nep-dev and nep-ino
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Published - revised version published in: Berkeley Electronic Journal in Macroeconomics: Contributions to Macroeconomics, 2007, 7(1), Article 5

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