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The Economics of Productive Systems: Segmentation and Skill-Biased Change

  • Gilles Duranton

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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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0398.

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Date of creation: Jul 1998
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Handle: RePEc:cep:cepdps:dp0398
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Caroli, Eve & Greenan, Nathalie & Guellec, Dominique, 2001. "Organizational Change and Skill Accumulation," Industrial and Corporate Change, Oxford University Press, vol. 10(2), pages 481-506, June.
  2. Acemoglu, Daron, 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," CEPR Discussion Papers 1707, C.E.P.R. Discussion Papers.
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  8. Kiley, Michael T, 1999. "The Supply of Skilled Labour and Skill-Biased Technological Progress," Economic Journal, Royal Economic Society, vol. 109(458), pages 708-24, October.
  9. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
  10. Dale W. Jorgenson, 2001. "Information Technology and the U.S. Economy," American Economic Review, American Economic Association, vol. 91(1), pages 1-32, March.
  11. Kiminiori Matsuyama, 1994. "Complementaries and Cumulative Processes In Models of Monopolistic Competition," Discussion Papers 1106, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  13. Charles I. Jones, 2002. "Sources of U.S. Economic Growth in a World of Ideas," American Economic Review, American Economic Association, vol. 92(1), pages 220-239, March.
  14. Claudia Goldin & Lawrence F. Katz, 1999. "The Returns to Skill in the United States across the Twentieth Century," NBER Working Papers 7126, National Bureau of Economic Research, Inc.
  15. Doms, Mark & Dunne, Timothy & Troske, Kenneth R, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 253-90, February.
  16. Françis KRAMARZ & Francis KRAMARZ & Louis-Paul PELÉ, 1996. "Wage Inequalities and Firm-Specific Compensation policies in France," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 369-386.
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