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Inequality, Technology, and the Social Contract

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Roland Benabou

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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 analyze 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 no 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 world-wide 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10371.

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Date of creation: Mar 2004
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Handle: RePEc:nbr:nberwo:10371

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D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
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. Marianne Saam, 2005. "Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor," DEGIT Conference Papers c010_013, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  2. Vollrath, Dietrich, 2008. "Wealth Distribution and the Provision of Public Goods: Evidence from the United States," MPRA Paper 11534, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. Daron Acemoglu & James A. Robinson, 2006. "Persistence of Power, Elites and Institutions," NBER Working Papers 12108, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. 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!]
  5. Daron Acemoglu, 2005. "Equilibrium Bias of Technology," NBER Working Papers 11845, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Benabou, Roland, 2004. "Inequality, Technology, and the Social Contract," Papers 08-15-2005, Princeton University, Research Program in Political Economy. [Downloadable!]
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