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The economics of production systems: Segmentation and skill-biased change

  • Duranton, Gilles

In this paper we introduce the concept of productive systems. Assuming a complementarity between skills and technology (more 'complex' technologies are intrinsically more productive but they require a more skilled labour force) and gains from the division of labor, firms face a trade-off between simple technologies for which the labor force is abundant and more complex technologies with less division of labor. In equilibrium, the economy is partitioned into productive systems working at different levels of complexity. The distribution of skills determines the boundaries of the productive systems, which in turn determine the wages. Thus, changes in the distribution of skills can have a dramatic effect upon wage inequalities. In particular an increase in skilled workers can induce first higher wages for all workers and then higher wages for the skilled but lower wages for the unskilled. This seems consistent with the recent evolution of the labor market.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 48 (2004)
Issue (Month): 2 (April)
Pages: 307-336

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Handle: RePEc:eee:eecrev:v:48:y:2004:i:2:p:307-336
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