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Technology Policy and Wage Inequality

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Author Info
Guido Cozzi
Giammario Impullitti

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

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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.;

Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

References listed on IDEAS
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    Other versions:
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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. Giordani, Paolo E. & Zamparelli, Luca, 2007. "The Importance of Industrial Policy in Quality-Ladder Growth Models," MPRA Paper 6142, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. 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. [Downloadable!] (restricted)
  3. Afonso, Oscar, 2008. "The impact of government intervention on wage inequality without scale effects," Economic Modelling, Elsevier, vol. 25(2), pages 351-362, March. [Downloadable!] (restricted)
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