Effects of Innovation on the Structure of Labor Market in China

Abstract

In this article, two-equation dynamic model is constructed to analyze both relative and absolute effects of innovation on the demand of skilled and unskilled labor, namely if skill-biased technical change happens in China. GMM-SYS techniques are applied to panel data comprising 30 regions over 7 years from 2006 to 2012. Results provide evidence that R&D funds will leads to increasing demand of skilled workers and decreasing demand of unskilled workers. R&D expenditure grows by 1%, demand of the skilled worker will grow by 0.0364%, but the unskilled will reduce by 0.01%. However, when using the number of granted patents to represent technical change, results show to be unskilled bias. The main reason may be that most of patent subjects in China come from foreign countries, and utilization rate of patents in domestic companies is not high. Thus, comprehensively enhancing the capacity rate of independent innovation, implementing the innovation-driven strategy, are basic ways to optimize the structure of the labor market in China.