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Directed Sector and Skill-Specific Technological Change: The Development of Wages for the High and Low Skilled

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  • Juergen Antony

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Abstract

This paper presents a dynamic two sector, two skill groups model of endogenous skill and sector specific technological change. The sectors refer to a "high-tech” and a "low-tech” sector of an economy. The direction of technological change is driven by market forces determined by the skill composition of the work force. It is shown that a change in this skill composition - a higher growth rate of the high skilled workforce in the "high-tech” sector than in the "low-tech” sector - leads to an increasing relative wage of the high skilled despite the fact that the aggregate supply of the high skilled might rise. This directed technological adjustment can easily overcome the usual substitution effect which would lead the relative wage to fall. The important result of the model is that the result does not depend on high values of the elasticity of substitution as necessary in other models of directed technological change, e.g. Acemoglu (1998, 2001). Further some of these models can be interpreted as special cases of the present model. Some open economy extensions show how effects of the mentioned change in the skill composition of the work force can spill over from one country to another if both countries engage in free trade and if the state of technology is determined globally.

Suggested Citation

  • Juergen Antony, 2003. "Directed Sector and Skill-Specific Technological Change: The Development of Wages for the High and Low Skilled," Discussion Paper Series 236, Universitaet Augsburg, Institute for Economics.
  • Handle: RePEc:aug:augsbe:0236
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    File URL: http://www.wiwi.uni-augsburg.de/vwl/institut/paper/236.pdf
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    References listed on IDEAS

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    1. Luis A. Rivera-Batiz & Paul M. Romer, 1991. "Economic Integration and Endogenous Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 531-555.
    2. Daron Acemoglu, 2002. "Directed Technical Change," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 781-809.
    3. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, March.
    4. Eli Bekman & John Bound & Stephen Machin, 1998. "Implications of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1245-1279.
    5. Stiglitz, Joseph E, 1969. "Allocation of Heterogeneous Capital Goods in a Two-Sector Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(3), pages 373-390, October.
    6. Daron Acemoglu & Fabrizio Zilibotti, 2001. "Productivity Differences," The Quarterly Journal of Economics, Oxford University Press, vol. 116(2), pages 563-606.
    7. Kiley, Michael T, 1999. "The Supply of Skilled Labour and Skill-Biased Technological Progress," Economic Journal, Royal Economic Society, vol. 109(458), pages 708-724, October.
    8. Daron Acemoglu, 2003. "Patterns of Skill Premia," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 199-230.
    9. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
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    13. Richard B. Freeman, 1991. "How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?," NBER Working Papers 3826, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    wage inequality; directed technological change; endogenous growth; international trade;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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