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The present study is aimed to assess the effects of technical change and mechanisation on employment in the manufacturing sectors of the OECD countries over the 1995-2018 period. Using the input-output tables and the database for the Structural Analysis from the OECD statistics, we compute the vertically integrated labour productivity and the vertically integrated capital-labour ratio as proxies of technical change and mechanisation, respectively. The effects of collective bargaining, industrial business cycle dynamics, and insertion in the global value chains are controlled by including the average real wage, the real gross value-added, and the share of domestic employment embodied in foreign final demand in the linear regression. Given that both technical change and mechanisation favour skilled over unskilled labour, we discompose the sample following the OECD sectoral classification of manufacturing industries based on technology: high tech, medium-high tech, medium-low tech, and low tech. The second generation of panel cointegration techniques is applied to conduct the empirical analysis.
First, cross-sectional dependence in data is tested by applying the Cross-Sectional Augmented Im, Pesaran and Shin (CIPS) test by Pesaran (2007). Second, we evaluate whether the variables contain a unit root using the Pesaran CIPS test. As a further step, we examine whether the series are cointegrated using the panel cointegration test and the error correction model (ECM) cointegration test by Westerlund (2007). Lastly, the cross-sectional-autoregressive distributed lag (CS-ARDL) and cross-sectionally augmented distributed lag (CS-DL) by Chudik et al. (2015, 2016) are employed to estimate the short-run and long-run effects of technical change and mechanisation on manufacturing employment. We expect employment in those manufacturing sectors classified as high tech and medium-high tech will be positively related to technical change and mechanisation. Conversely, those sectors classified as medium-low tech and low tech may be related negatively to the increase in vertically integrated labour productivity and vertically integrated capital-labour ratio.
Do technical change and mechanisation hurt employment in the manufacturing sectors? An empirical assessment for the OECD countries
