Quantifying biased technical progress in China: Heterogeneous human capital and labor force dynamics

The main objectives of this study are to estimate the biased technical progress in China considering heterogeneity in human capital and labor force, examine how this heterogeneity quantitatively impacts the elasticity of substitution and biased technical progress compared to homogeneous labor assumptions, and compare the growth rates of human capital-augmenting and labor-augmenting technical progress. The estimation procedure involves a constrained Seemingly Unrelated Regression (SUR) using provincial-level panel data from 1985 to 2021. By comparing results with and without accounting for labor force heterogeneity and human capital, the analysis quantifies their impact on the estimated elasticity of substitution between factors and the magnitude and direction of technical bias. Results found that the elasticity of capital-labor (human capital) substitution is between 0.7 and 0.8, and the elements are generally complementary. Although it does not affect the overall trend of elasticity of substitution and biased technical progress, the heterogeneity of human capital and labor force has a quantitative impact on them. It means that the elasticity of substitution increased, and the biased technological progress decreased. Moreover, the growth rate of human capital-augmenting technical progress was significantly lower than that of labor-augmenting technological progress. This study estimates the biased technical progress in China, where the human capital and labor force are heterogeneous. The findings suggest that policymakers should prioritize human capital investments and technological upgrades in industries to rebalance China's technical progress and boost productivity growth.