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IZA Discussion Paper No. 454
March 2002
Defensive Innovations

revised version published in: Berkeley Electronic Journal in Macroeconomics: Contributions to Macroeconomics, 2007, 7(1), Article 5

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.

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Das IZA@LISER-Netzwerk ist eine weltweite Gemeinschaft für exzellente Forschung in der Arbeitsmarktökonomie und angrenzenden Fachgebieten. Nach dem Wechsel von Bonn wird das Netzwerk nun am Luxembourg Institute of Socio-Economic Research (LISER) koordiniert.

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