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Dynamic analysis of wage inequality and creative destruction

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  • Keiichi Kishi

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Abstract

This paper investigates the transitional dynamics of a basic Schumpeterian growth model under constant relative risk aversion. In this model, there are three patterns governing the evolution of wage inequality, but only if the intertemporal elasticity of substitution in consumption is sufficiently low: (a) skill-biased technological change, i.e., technological progress leads to a widening of wage inequality; (b) unskill-biased technological change, i.e., technological progress leads to a contraction of wage inequality; and (c) unbiased technological change, i.e., technological progress is independent of wage inequality. By conducting comparative dynamics of an unexpected permanent increase in research productivity in any sector, which we interpret as the arrival of new general purpose technologies, we show that the property of technological change shifts entirely from unskill-biased to skill-biased. The evolution of wage inequality in the model is then consistent with the shift in the trend in wage inequality beginning in the 1970s in the US economy. Copyright Springer-Verlag Wien 2015

Suggested Citation

  • Keiichi Kishi, 2015. "Dynamic analysis of wage inequality and creative destruction," Journal of Economics, Springer, vol. 115(1), pages 1-23, May.
  • Handle: RePEc:kap:jeczfn:v:115:y:2015:i:1:p:1-23
    DOI: 10.1007/s00712-014-0403-7
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    References listed on IDEAS

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    Cited by:

    1. Keiichi Kishi, 2014. "A patentability requirement and industries targeted by R&D," Discussion Papers in Economics and Business 14-27-Rev., Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP), revised Oct 2014.

    More about this item

    Keywords

    Endogenous growth; Innovation; Creative destruction; Wage inequality; Factor-biased technological change; General purpose technologies; O31; O40; O41; O51;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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