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Accelerated Technological Progress - An Explanation for Wage Dispersion and a Possible Solution to the Productivity Paradox

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Author Info
Nikutowski, Oliver
Abstract

Due to scarcity considerations an increase in the supply of college graduates should reduce the premium for this kind of qualification. Therefore it seems quite contradictory that a tremendous educational expansion in the USA is accompanied by rising wage dispersion (overall and between educational groups). A second seemingly paradox development, which occured simultaneously, is the reduction of the total factor productivity during the emergence of the computerage - the so called productivity paradox. This contribution offers a simple unified solution to both of these puzzles and explains the educational expansion by assuming accelerated technological progress: An increase in the speed of technological progress raises the economic value of prospective periods and therefore works in favor of timeconsuming higher qualifications. The resulting educational expansion firstly goes along with a composition effect which leads to wage dispersion. Secondly the additional absence from the labor market of some more able individuals, due to the longer qualification, as well as an increasing share of individuals who choose a less productive qualification may lead to a transitory slowdown of the productivity growth rate.

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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 1925.

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Date of creation: Aug 2007
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Handle: RePEc:lmu:muenec:1925

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Related research
Keywords: Wage Dispersion; Productivity Paradox; Inequality; Distribution; Technological Progress; Technological Change; SBTC; Educational Expansion; Total Factor Productivity; Educational Signaling; Real Wage Losses;

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Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J82 - Labor and Demographic Economics - - Labor Standards - - - Labor Force Composition
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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