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General Purpose Technology and Within-Group Inequality

Author

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  • Aghion, Philippe
  • Howitt, Peter
  • Violante, Giovanni L

Abstract

This paper develops a theoretical model to analyse how a General Purpose Technology (GPT) shapes within-group wage inequality when workers are ex-ante equal, but their adaptability to new technologies is subject to stochastic factors that are history dependent. It is argued that the diffusion of a GPT leverages the importance of these stochastic factors in three ways. First, a rise in the speed of embodied technological progress raises the market premium to workers adaptable to the leading-edge technology. Second, the generality of the technology raises the ability of adaptable workers to transfer recently acquired knowledge to new machines. Third, the generality of the technology reduces the cost of retooling old machines, which increases the demand for adaptable workers. In the model the rise in within-group inequality is mainly transitory, and is mirrored by a rise in wage instability. The key predictions of the model are shown to be in line with some of the existing empirical evidence.

Suggested Citation

  • Aghion, Philippe & Howitt, Peter & Violante, Giovanni L, 2000. "General Purpose Technology and Within-Group Inequality," CEPR Discussion Papers 2474, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2474
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    Citations

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    Cited by:

    1. Ann Bartel & Saul Lach & Nachum Sicherman, 2005. "Outsourcing and Technological Change," NBER Working Papers 11158, National Bureau of Economic Research, Inc.
    2. Eswar S. Prasad, 2002. "Wage Inequality in the United Kingdom, 1975-99," IMF Staff Papers, Palgrave Macmillan, vol. 49(3), pages 339-363.
    3. Sunde, Uwe, 2001. "Human Capital Accumulation, Education and Earnings Inequality," IZA Discussion Papers 310, Institute for the Study of Labor (IZA).
    4. Keane, Michael P. & Prasad, Eswar S., 2006. "Changes in the structure of earnings during the Polish transition," Journal of Development Economics, Elsevier, vol. 80(2), pages 389-427, August.
    5. Martine Carre & David Drouot, 2004. "Pace versus Type: The Effect of Economic Growth on Unemployment and Wage Patterns," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 737-757, July.
    6. Yoshiaki Azuma & Herschel I. Grossman, 2003. "Educational Inequality," LABOUR, CEIS, vol. 17(3), pages 317-335, September.
    7. Cecilia Garcia-Penalosa & Campbell leith & Chol-Won Li, 2001. "Wage Inequality and the Effort Incentive Effects of Technical Progress," Working Papers 2001_14, Business School - Economics, University of Glasgow.
    8. Yoshiaki Azuma & Herschel Grossman, 2001. "Educational Inequality," Working Papers 2001-03, Brown University, Department of Economics.
    9. Weinberg, Bruce A., 2004. "Experience and Technology Adoption," IZA Discussion Papers 1051, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    General Purpose Technology; History-Dependence; Inequality; Skill Transferability; Technological Progress;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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