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General Purpose Technology and Within-Group Inequality

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  • Aghion, Philippe
  • Howitt, Peter
  • Violante, Giovanni L

Abstract

This paper develops a theoretical model to analyse how a General Purpose Technology (GPT) shapes within-group wage inequality when workers are ex-ante equal, but their adaptability to new technologies is subject to stochastic factors that are history dependent. It is argued that the diffusion of a GPT leverages the importance of these stochastic factors in three ways. First, a rise in the speed of embodied technological progress raises the market premium to workers adaptable to the leading-edge technology. Second, the generality of the technology raises the ability of adaptable workers to transfer recently acquired knowledge to new machines. Third, the generality of the technology reduces the cost of retooling old machines, which increases the demand for adaptable workers. In the model the rise in within-group inequality is mainly transitory, and is mirrored by a rise in wage instability. The key predictions of the model are shown to be in line with some of the existing empirical evidence.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2474.

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Date of creation: Jun 2000
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Handle: RePEc:cpr:ceprdp:2474

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Related research

Keywords: General Purpose Technology; History-Dependence; Inequality; Skill Transferability; Technological Progress;

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Cited by:
  1. Bartel, Ann P & Lach, Saul & Sicherman, Nachum, 2005. "Outsourcing and Technological Change," CEPR Discussion Papers 5082, C.E.P.R. Discussion Papers.
  2. Eswar S. Prasad, 2002. "Wage Inequality in the United Kingdom, 1975-99," IMF Staff Papers, Palgrave Macmillan, vol. 49(3), pages 339-363.
  3. Keane, Michael P. & Prasad, Eswar S., 2006. "Changes in the structure of earnings during the Polish transition," Journal of Development Economics, Elsevier, vol. 80(2), pages 389-427, August.
  4. Yoshiaki Azuma & Herschel I. Grossman, 2001. "Educational Inequality," NBER Working Papers 8206, National Bureau of Economic Research, Inc.
  5. Sunde, Uwe, 2001. "Human Capital Accumulation, Education and Earnings Inequality," IZA Discussion Papers 310, Institute for the Study of Labor (IZA).
  6. Cecilia Garcia-Penalosa & Campbell leith & Chol-Won Li, 2001. "Wage Inequality and the Effort Incentive Effects of Technical Progress," Working Papers 2001_14, Business School - Economics, University of Glasgow.
  7. Martine Carre & David Drouot, 2004. "Pace versus Type: The Effect of Economic Growth on Unemployment and Wage Patterns," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 737-757, July.
  8. Weinberg, Bruce A., 2004. "Experience and Technology Adoption," IZA Discussion Papers 1051, Institute for the Study of Labor (IZA).

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