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The Determinants of Long-Run Inequality

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  • Andrea Canidio

Abstract

I 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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Paper provided by Department of Economics, Central European University in its series CEU Working Papers with number 2012_10.

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Date of creation: 20 Mar 2012
Date of revision: 20 Mar 2012
Handle: RePEc:ceu:econwp:2012_10

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  8. Mookherjee, Dilip & Ray, Debraj, 2002. "Persistent Inequality," Discussion Paper 57, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  9. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc.
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  11. Kiminori Matsuyama, 1998. "Endogenous Inequality," Discussion Papers 1238, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
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