Innovation and Wage Polarisation in European Industries

In this article we improve on the literature dealing with the polarising effects of technological change on wages by proposing more rigorous definitions of wage dispersion within industries and of the different types and effects of innovation. We carry out an analysis across 10 manufacturing and service sectors in seven European countries (France, Italy, Germany, the Netherlands, Portugal, Spain and the UK), for two time periods. In addition to structural economic variables, we draw data from two waves of the Community Innovation Surveys (CIS 2, 1994– 1996 and CIS3, 1998–2000) and from two waves of the European Community Household Panel (ECHP, 1994 and 2001) providing information on employment, wages, education and other individual’s characteristics, that we grouped in three skill groups: managers and professionals, white-collar and blue-collar workers. We set up econometric models to study the impact that different technological strategies, labour market patterns, education and training have on the levels of wage polarisation within industries. Higher wage polarisation is found in industries with strong product innovation and high shares of workers with university education. Wage compression is associated to the diffusion of new process technologies and to high shares of workers with secondary education. Finally, a fast employment dynamics favours wage disparities.