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Vintage capital as an origin of inequalities

Author

Listed:
  • Andreas Hornstein
  • Per Krusell
  • Giovanni L. Violante

Abstract

Does capital-embodied technological change play an important role in shaping labor market inequalities? This paper addresses the question in a model with vintage capital and search / matching frictions where costly capital investment leads to large heterogeneity in productivity among vacancies in equilibrium. The paper first demonstrates analytically how both technology growth and institutional variables affect equilibrium wage inequality, income shares and unemployment. Next, it applies the model to a quantitative evaluation of capital as an origin of wage inequality: at the current rate of embodied productivity growth a 10-year vintage differential in capital translates into a 6% wage gap. The model also allows a U.S. ? continental Europe comparison: an embodied technological acceleration interacted with different labor market institutions can explain a significant part of the differential rise in unemployment and capital share and some of the differential dynamics in wage inequality.

Suggested Citation

  • Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2002. "Vintage capital as an origin of inequalities," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    • Handle: RePEc:fip:fedfpr:y:2002:i:nov:x:5
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    References listed on IDEAS

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    Cited by:

    1. Xavier Cuadras Morató & Xavier Mateos-Planas, 2003. "Are Changes in Education Important for the Wage Premium and Unemployment?," Working Papers 80, Barcelona School of Economics.
    2. Claudio Michelacci & David Lopez-Salido, 2007. "Technology Shocks and Job Flows," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(4), pages 1195-1227.
    3. Parui, Pintu, 2021. "Financialization and endogenous technological change: A post-Kaleckian perspective," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 221-244.
    4. Marco Leonardi, 2007. "Firm heterogeneity in capital-labour ratios and wage inequality," Economic Journal, Royal Economic Society, vol. 117(518), pages 375-398, March.
    5. Pissarides, Christopher & Vallanti, Giovanna, 2004. "Productivity growth and employment: theory and panel estimates," LSE Research Online Documents on Economics 2189, London School of Economics and Political Science, LSE Library.
    6. Claudio Michelacci & David Lopez-Salido, 2004. "Technology Shocks and Job Flows," Working Papers wp2004_0405, CEMFI.
    7. Fabio Canova & David Lopez-Salido & Claudio Michelacci, 2006. "Schumpeterian technology shocks," Economics Working Papers 1012, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2007.

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    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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