Technological Acceleration, Skill Transferability, And The Rise In Residual Inequality
AbstractThis paper provides a quantitative theory for the recent rise in residual wage inequality consistent with the empirical observation that a sizable part of this increase has a transitory nature, a feature that eludes standard models based on ex ante heterogeneity in ability. An acceleration in the rate of quality improvement of equipment, like the one observed from the early 1970s, increases the productivity/quality differentials across machines (jobs). In a frictional labor market, this force translates into higher wage dispersion even among ex ante equal workers. With vintage-human capital, the acceleration reduces workers' capacity to transfer skills from old to new machines, generating a rise in the cross-sectional variance of skills, and therefore of wages. Through calibration, the paper shows that this mechanism can account for 30 percent of the surge in residual inequality in the U. S. economy (or for most of its transitory component). Two key implications of the theory-faster within-job wage growth and larger wage losses upon displacement-find empirical support in the data. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
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Bibliographic InfoArticle provided by MIT Press in its journal The Quarterly Journal of Economics.
Volume (Year): 117 (2002)
Issue (Month): 1 (February)
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Web page: http://mitpress.mit.edu/journals/
Other versions of this item:
- Violante, Giovanni L, 2001. "Technological Acceleration, Skill Transferability and the Rise in Residual Inequality," CEPR Discussion Papers 2765, C.E.P.R. Discussion Papers.
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- O30 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - General
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