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Coping with Technological Change: The Role of Ability in Making Inequality so Persistent

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  • Yona Rubinstein
  • Daniel Tsiddon

Abstract

This study provides an explanation to the evolution of wage inequality over the last 30 years and supports this explanation with evidence. A faster rate of technological progress introduces new unknown elements at the workplace. The need to cope with the unknown accentuates the role of ability and thus increases wage inequality within and between education groups. Inasmuch as education is an irreversible investment project the rise in within group inequality BOOSTS UP the rise of between group inequality. Guided by this theory we turn to the PSID for evidence. Using parents' education to approximate child's ability we show the following set of results: (a) Controlling for education of the child, parents' education contributed much more in the 1980s to his wage growth than in the 1970s. (b) The correlation between the parents' and the child's education increases from the 1970s to the 1980s. (c) The return to college education for an individual with no ability rents did not change--it remains steady at the 23 percent. (d) Facts (a)--(c) CANNOT be attributed to the impact of parent's income. It is parents' education and not parents' income that is more relevant for son's economic outcomes in the 1980s.

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 9 (2004)
Issue (Month): 3 (09)
Pages: 305-346

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Handle: RePEc:kap:jecgro:v:9:y:2004:i:3:p:305-346

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Web page: http://www.springerlink.com/link.asp?id=102931

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  1. Galor, Oded & Tsiddon, Daniel, 1997. " The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 93-124, March.
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  17. Robert H. Topel, 1997. "Factor Proportions and Relative Wages: The Supply-Side Determinants of Wage Inequality," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 55-74, Spring.
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Citations

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Cited by:
  1. Paolo Figini & Holger Go¨rg, 2011. "Does Foreign Direct Investment Affect Wage Inequality? An Empirical Investigation," The World Economy, Wiley Blackwell, vol. 34(9), pages 1455-1475, 09.
  2. Steger, Thomas M., 2007. "Flexibility, Sectoral Hysteresis, And Downturns," Macroeconomic Dynamics, Cambridge University Press, vol. 11(01), pages 128-148, February.
  3. Leonid V. Azarnert, 2010. "Immigration, fertility and human capital: A model of economic decline of the West," Working Papers 2010-04, Department of Economics, Bar-Ilan University.
  4. Hendricks, Lutz, 2007. "The intergenerational persistence of lifetime earnings," European Economic Review, Elsevier, vol. 51(1), pages 125-144, January.
  5. Bernhard Eckwert & Itzhak Zilcha, 2007. "The Effect of Better Information on Income Inequality," Economic Theory, Springer, vol. 32(2), pages 287-307, August.
  6. Gonzalo Castex & Evgenia Dechter, 2013. "The Changing Roles of Education and Ability in Wage Determination," Working Papers Central Bank of Chile 704, Central Bank of Chile.
  7. Maurizio Iacopetta, 2008. "Technological progress and inequality: an ambiguous relationship," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 455-475, August.

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