Technological Changes and Equilibrium Wage Structure: A Cooperative Game Approach

In recent years, lumpy technological innovations have occurred with increasing frequency, affecting workers’ wages in ways that depend on their skills and abilities. This paper proposes a framework to evaluate which types of workers gain or lose during the interim period following the introduction of a major technological innovation. Using a cooperative game-theoretic approach, we develop a model of large labor markets with finitely many types of atomless workers and a finite set of available technologies, each described by a pair consisting of a labor input vector and an output value. The equilibrium wage structure is characterized by the f-core (the coalition structure core with finite membership coalitions as in Kaneko and Wooders (1986) of an atomless transferable utility game generated by the model. The generically unique equilibrium wage rates can be computed efficiently, as the f-core allocation maximizes total production value. Within this framework, we analyze how the equilibrium wage structure for heterogeneous worker types changes when a new technology becomes available. We show that, under mild conditions, the introduction of a relevant and efficient technology almost always disadvantages at least one type of labor, while benefiting another. However, when there are more than two labor types, identifying which types gain and which lose is generally nontrivial. We also show that if the population of a given worker type increases, holding available technologies fixed, the wage rate for that type weakly decreases.