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Quality Improvements, the Structure of Employment, and the Skill-bias Hypothesis Revisited

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  • Grossmann Volker

    ()
    (University of Zürich)

Abstract

This paper examines the impact of technological progress in the effectiveness of quality-improving, demand-enhancing activities on wage inequality and the employment structure in an ideal variety model of monopolistic competition. In a first step, it is shown that such technological change leads to a higher non-production employment share in the economy, in turn raising price mark-up factors for differentiated goods. Moreover, accounting for the fact that demand-enhancing activities are skill-intensive, the model provides a novel mechanism for the way in which new technologies affect the relative demand for skilled labor in the economy. Although an increased effectiveness of product innovations raises the demand for skilled labor in the differentiated goods sector, the impact on wage inequality is generally ambiguous if, in addition, there is a low-skilled intensive, homogenous goods sector. This is because higher mark-ups in the differentiated goods sector may shift the goods demand structure towards standardized goods. Finally, these results are compared with the impact of "skill-biased" process innovations, which have primarily been considered in the theoretical skill-bias literature. Using a simple illustration, it is argued that, once analytically distinguishing between production-related and quality-improving tasks, skill-biased process innovations do not necessarily lead to a rise in skill premia even in a one-sector model.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 2 (2002)
Issue (Month): 1 (April)
Pages: 1-25

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Handle: RePEc:bpj:bejmac:v:topics.2:y:2002:i:1:n:2

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Cited by:
  1. Volker Grossmann, 2005. "White-collar employment, inequality, and technological change," Journal of Economics, Springer, vol. 86(1), pages 119-142, December.
  2. Volker Grossmann, 2003. "Managerial Job Assignment and Imperfect Competition in Asymmetric Equilibrium," CESifo Working Paper Series 914, CESifo Group Munich.
  3. Hartmut Egger & Volker Grossmann, 2005. "Non-Routine Tasks, Restructuring of Firms, and Wage Inequality Within and Between Skill-Groups," Journal of Economics, Springer, vol. 86(3), pages 197-228, December.
  4. Egger, Hartmut & Grossmann, Volker, 2004. "Noncognitive Abilities and Within-Group Wage Inequality," IZA Discussion Papers 1024, Institute for the Study of Labor (IZA).
  5. Falkinger, Josef & Grossmann, Volker, 2002. "Workplaces in the Primary Economy and Wage Pressure in the Secondary Labor Market," IZA Discussion Papers 523, Institute for the Study of Labor (IZA).

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