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Technology Policy and Wage Inequality

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  • Guido Cozzi
  • Giammario Impullitti

Abstract

In this paper we argue that government procurement policy played a role in stimulating the wave of innovation that hit the US economy in the 1980’s, as well as the simultaneous increase in inequality and in education attainment. Since the early 1980’s U.S. policy makers began targeting commercial innovations more directly and explicitly. We focus on the shift in the composition of public demand towards high-tech goods which, by increasing the market-size of innovative rms, functions as a de-facto innovation policy tool. We build a quality-ladders non-scale growth model with heterogeneous industries and endogenous supply of skills, and show both theoretically and empirically that increases in the technological content of public spending stimulates R&D, raises the wage of skilled workers and, at the same time, stimulates human capital accumulation. A calibrated version of the model suggests that government policy explains up to 32 percent of the observed increase in wage inequality in the period 1978-91.

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2008_23.

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Date of creation:
Date of revision: Oct 2006
Handle: RePEc:gla:glaewp:2008_23

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Related research

Keywords: R&D-driven growth theory; government procurement; wage inequality; educational choice; technology policy.;

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References

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Citations

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Cited by:
  1. Cabral, Luís M B & Cozzi, Guido & Denicolo, Vincenzo & Spagnolo, Giancarlo & Zanza, Matteo, 2006. "Procuring Innovation," CEPR Discussion Papers 5774, C.E.P.R. Discussion Papers.
  2. Giordani Paolo E & Zamparelli Luca, 2008. "The Importance of Industrial Policy in Quality-Ladder Growth Models," The B.E. Journal of Macroeconomics, De Gruyter, vol. 8(1), pages 1-30, January.
  3. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "The Effects of Technical Change on Labor Market Inequalities," Working Papers 89, Princeton University, Department of Economics, Center for Economic Policy Studies..
  4. Giammario Impullitti, 2006. "International Competition, Growth and Optimal R&D Subsidies," 2006 Meeting Papers 739, Society for Economic Dynamics.

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