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The Determinants of Long-Run Inequality

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  • Andrea Canidio

Abstract

I explore the effect of skill-biased technological change on long-run inequality using a theoretical model where the supply of skilled and unskilled workers, the cost of education, and credit rationing are endogenous. I show that the existence of unequal steady states does not depend on the degree of technological skill bias, but on the credit market, the cost of education, altruism, and the overall growth rate of the economy. However, when unequal steady states exist, economies with a higher technological skill bias have a greater long-run inequality. Therefore, skill-bias technological change is a second-order determinant of long-run inequality: a higher technological skill bias is associated with greater long-run inequality only if long-run inequality exists; the existence of long-run inequality does not depend on skill bias.

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  • Andrea Canidio, 2012. "The Determinants of Long-Run Inequality," CEU Working Papers 2012_10, Department of Economics, Central European University, revised 20 Mar 2012.
  • Handle: RePEc:ceu:econwp:2012_10
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