To explain the rise in the college wage premium in developed economies in the past decades, the present paper examines the effects of technological progress on workers' effort incentives, which determine the effective labor supply. Five effort incentive effects of technological progress are identified, and through these we obtain a number of results. Firstly, we establish that wage inequality can increase following an acceleration in skill-neutral technological progress. Secondly, an increase in skill-biased technological progress means, (i) skilled wages overshoot, (ii) unskilled wages undershoot, and hence (iii) wage inequality overshoots their respective long-run values. Thirdly, endogenising the number of skilled and unskilled workers on the basis of economic incentives does not eliminate wage inequality even in the long run. Fourthly, we can obtain hysteresis effects in the determination of long-run wage inequality. Finally, government policies which raise the equilibrium rate of unemployment are likely to reduce the impact of technical progress on inequality, and this may help to explain the relative increase in inequality in the US and UK compared with other European economies. Our focus on the supply-side complements studies which emphasize the impact of skill-biased technological progress on relative demand for skill workers.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 513.
Length: Date of creation: 2001 Date of revision: Handle: RePEc:ces:ceswps:_513
Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich Phone: +49 (89) 9224-0 Fax: +49 (89) 985369 Web page: http://www.cesifo.de
For technical questions regarding this item, or to correct its listing, contact: (Julio Saavedra).
Related research
Keywords:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)