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

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  • Duranton, Gilles

Abstract

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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  • Duranton, Gilles, 2004. "The economics of production systems: Segmentation and skill-biased change," European Economic Review, Elsevier, vol. 48(2), pages 307-336, April.
  • Handle: RePEc:eee:eecrev:v:48:y:2004:i:2:p:307-336
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    Cited by:

    1. Friso Schlitte, 2012. "Local human capital, segregation by skill, and skill‐specific employment growth," Papers in Regional Science, Wiley Blackwell, vol. 91(1), pages 85-106, March.
    2. Hornstein, Andreas & Krusell, Per & Violante, Giovanni L., 2005. "The Effects of Technical Change on Labor Market Inequalities," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 20, pages 1275-1370 Elsevier.
    3. Asa Rosén & Etienne Wasmer, 2005. "Higher Education Levels, Firms' Outside Options and the Wage Structure," LABOUR, CEIS, vol. 19(4), pages 621-654, December.
    4. Schlitte, Friso & Böttcher, Fabian & Niebuhr, Annekatrin & Diez, Javier Revilla, 2010. "The determinants of regional disparities in skill segregation: Evidence from a cross section of German regions," HWWI Research Papers 1-36, Hamburg Institute of International Economics (HWWI).
    5. Alessandro Cigno, 2015. "Trade, foreign investment, and wage inequality in developing countries," IZA World of Labor, Institute for the Study of Labor (IZA), pages 193-193, November.
    6. Jeemol Unni, 2006. "Home-based Work in India: A Disappearing Continuum of Dependence?," Working Papers id:379, eSocialSciences.
    7. Paul Beaudry & David Green, 2001. "Population Growth, Technological Adoption and Economic Outcomes: A Theory of Cross-Country Differences for the Information Era," NBER Working Papers 8149, National Bureau of Economic Research, Inc.
    8. Daron Acemoglu, 2007. "Equilibrium Bias of Technology," Econometrica, Econometric Society, vol. 75(5), pages 1371-1409, September.
    9. Basant, Rakesh & Rani Uma, 2004. "Labour Market Deepening in the Indian Information Technology Industry: An Exploratory Analysis," IIMA Working Papers WP2004-06-06, Indian Institute of Management Ahmedabad, Research and Publication Department.
    10. repec:pri:cepsud:113krusell is not listed on IDEAS
    11. Paul Beaudry & David Green, 2000. "The Changing Structure of Wages in the US and Germany: What Explains the Differences?," NBER Working Papers 7697, National Bureau of Economic Research, Inc.

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