The Determinants of Long-Run Inequality
AbstractI explore the effect of skill-biased technological change on long-run inequality using a theoretical model where the supply of skilled and unskilled workers, the cost of education, and credit rationing are endogenous. I show that the existence of unequal steady states does not depend on the degree of technological skill bias, but on the credit market, the cost of education, altruism, and the overall growth rate of the economy. However, when unequal steady states exist, economies with a higher technological skill bias have a greater long-run inequality. Therefore, skill-bias technological change is a second-order determinant of long-run inequality: a higher technological skill bias is associated with greater long-run inequality only if long-run inequality exists; the existence of long-run inequality does not depend on skill bias.
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Bibliographic InfoPaper provided by Department of Economics, Central European University in its series CEU Working Papers with number 2012_10.
Date of creation: 20 Mar 2012
Date of revision: 20 Mar 2012
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-DGE-2012-09-09 (Dynamic General Equilibrium)
- NEP-LAB-2012-09-09 (Labour Economics)
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