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Skill-Biased Technological Change, Organizational Change, and Wage Inequality

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  • Kohei Daido

    ()
    (School of Economics, Kwansei Gakuin University)

  • Ken Tabata

    ()
    (School of Economics, Kwansei Gakuin University)

Abstract

We build a general equilibrium model of monopolistic competition with moral hazard contracting to examine the interactions among skill-biased technological change (SBTC), organizational changes, and skill premium and within-group wage inequality. While the existing literature finds that the increase in the skilled labor ratio induces SBTC and raises the skill premium, we show that SBTC leads to organizational change toward decentralization by delegating authority within firms, which inuences the reward schedule for delegated skilled managers. This organizational change results in the following: (1) the further increase in the skill premium and (2) the rapid expansion of wage inequality among skilled individuals (between skilled workers and skilled managers). Moreover, we find that there are multiple equilibria where the centralized and decentralized organizational modes simultaneously emerge at the intermediate values of the skilled labor ratio.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp84.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 84.

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Length: 31 pages
Date of creation: Feb 2012
Date of revision: Feb 2012
Handle: RePEc:kgu:wpaper:84

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Keywords: Decentralization; Moral Hazard; Skill-Biased Technological Change; Skill Premium; Within-Group Wage Inequality;

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  1. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, MIT Press, vol. 124(2), pages 843-881, May.
  2. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2009. "The organization of firms across countries," NBER Working Papers 15129, National Bureau of Economic Research, Inc.
  3. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Görlich, Dennis & Snower, Dennis J., 2010. "Wage Inequality and the Changing Organization of Work," Open Access Publications from Kiel Institute for the World Economy 37299, Kiel Institute for the World Economy (IfW).
  5. Michal Jerzmanowski & Malhar Nabar, 2013. "Financial Development And Wage Inequality: Theory And Evidence," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 211-234, 01.
  6. Marin, Dalia & Verdier, Thierry, 2008. "Power inside the firm and the market: A general equilibrium approach," Munich Reprints in Economics 19255, University of Munich, Department of Economics.
  7. Marin, Dalia & Thierry, Verdier, 2007. "Power in the Multinational Corporation in Industry Equilibrium," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 209, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Haskel, Jonathan & Slaughter, Matthew J, 2001. "Trade, Technology and U.K. Wage Inequality," Economic Journal, Royal Economic Society, vol. 111(468), pages 163-87, January.
  9. Nikolowa, Radoslawa, 2010. "Supply of skilled labour and organizational change," Labour Economics, Elsevier, vol. 17(3), pages 514-522, June.
  10. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243259, September.
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