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Inequality, Technology and the Social Contract

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Bénabou, Roland

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Abstract

The distribution of human capital and income lies at the center of a nexus of forces that shape a country’s economic, institutional and technological structure. I develop here a unified model to analyse these interactions and their growth consequences. Five main issues are addressed. First, I identify the key factors that make both European-style ‘welfare state’ and US-style ‘laissez-faire’ social contracts sustainable; I also compare the growth rates of these two politico-economic steady states, which are not Pareto-rankable. Second, I examine how technological evolutions affect the set of redistributive institutions that can be durably sustained, showing in particular how skill-biased technical change may cause the welfare state to unravel. Third, I model the endogenous determination of technology or organizational form that results from firms’ tailoring the flexibility of their production processes to the distribution of workers’ skills. The greater is human capital heterogeneity, the more flexible and wage-disequalizing is the equilibrium technology. Moreover, firms’ choices tend to generate excessive flexibility, resulting in suboptimal growth or even self-sustaining technology-inequality traps. Fourth, I examine how institutions also shape the course of technology; thus, a worldwide shift in the technology frontier results in different evolutions of production processes and skill premia across countries with different social contracts. Finally, I ask what joint configurations of technology, inequality and redistributive policy are feasible in the long run, when all three are endogenous. I show in particular how the diffusion of technology leads to the ‘exporting’ of inequality across borders; and how this, in turn, generates spillovers between social contracts that make it more difficult for nations to maintain distinct institutions and social structures.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4741.

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Date of creation: Nov 2004
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Handle: RePEc:cpr:ceprdp:4741

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Related research
Keywords: human capital inequality political economy redistribution skill bias social contract technical change welfare state

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Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
H10 - Public Economics - - Structure and Scope of Government - - - General
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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Full references

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.)

  1. Katsunori Yamada, 2005. "Public versus Private Education in an Endogenous Growth Model with Social Status," Economics Bulletin, Economics Bulletin, vol. 15(11), pages 1-9. [Downloadable!]
  2. Daron Acemoglu, 2005. "Equilibrium Bias of Technology," NBER Working Papers 11845, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Christopher Crowe, 2004. "Inflation, Inequality and Social Conflict," CEP Discussion Papers dp0657, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  4. Chris Papageorgiou & Marianne Saam, . "Two-Level CES Production Technology in the Solow and Diamond Growth Models," Departmental Working Papers 2005-07, Department of Economics, Louisiana State University. [Downloadable!]
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