IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Inequality, Technology and the Social Contract

  • Bénabou, Roland

The distribution of human capital and income lies at the center of a nexus of forces that shape a country’s economic, institutional and technological structure. I develop here a unified model to analyse these interactions and their growth consequences. Five main issues are addressed. First, I identify the key factors that make both European-style ‘welfare state’ and US-style ‘laissez-faire’ social contracts sustainable; I also compare the growth rates of these two politico-economic steady states, which are not Pareto-rankable. Second, I examine how technological evolutions affect the set of redistributive institutions that can be durably sustained, showing in particular how skill-biased technical change may cause the welfare state to unravel. Third, I model the endogenous determination of technology or organizational form that results from firms’ tailoring the flexibility of their production processes to the distribution of workers’ skills. The greater is human capital heterogeneity, the more flexible and wage-disequalizing is the equilibrium technology. Moreover, firms’ choices tend to generate excessive flexibility, resulting in suboptimal growth or even self-sustaining technology-inequality traps. Fourth, I examine how institutions also shape the course of technology; thus, a worldwide shift in the technology frontier results in different evolutions of production processes and skill premia across countries with different social contracts. Finally, I ask what joint configurations of technology, inequality and redistributive policy are feasible in the long run, when all three are endogenous. I show in particular how the diffusion of technology leads to the ‘exporting’ of inequality across borders; and how this, in turn, generates spillovers between social contracts that make it more difficult for nations to maintain distinct institutions and social structures.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4741
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4741.

as
in new window

Length:
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:cpr:ceprdp:4741
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  2. Michael T. Kiley, 1997. "The supply of skilled labor and skill-based technological progress," Finance and Economics Discussion Series 1997-45, Board of Governors of the Federal Reserve System (U.S.).
  3. Daron Acemoglu, 2001. "Directed Technical Change," NBER Working Papers 8287, National Bureau of Economic Research, Inc.
  4. Acemoglu, Daron & Aghion, Philippe & Violante, Giovanni L, 2001. "Deunionization, Technical Change and Inequality," CEPR Discussion Papers 2764, C.E.P.R. Discussion Papers.
  5. Roland Benabou, 2002. "Tax and Education Policy in a Heterogeneous-Agent Economy: What Levels of Redistribution Maximize Growth and Efficiency?," Econometrica, Econometric Society, vol. 70(2), pages 481-517, March.
  6. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December.
  7. Acemoglu, D., 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," Working papers 97-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Grossmann, G.M. & Maggi, G., 1998. "Diversity and Trade," Papers 192, Princeton, Woodrow Wilson School - Public and International Affairs.
  9. Dilip Mookherjee & Debraj Ray, 2003. "Persistent Inequality," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 369-393, 04.
  10. David Thesmar & Mathias Thoenig, 2000. "Creative Destruction And Firm Organization Choice," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1201-1237, November.
  11. Hassler, John & Mora, José V Rodríguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2001. "The Survival of the Welfare State," CEPR Discussion Papers 2905, C.E.P.R. Discussion Papers.
  12. Oded Galor & Omer Moav, 2000. "Ability-Biased Technological Transition, Wage Inequality, And Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 469-497, May.
  13. Galor, O. & Tsiddon, D., 1996. "Technological Progress, Mobility and Economic Growth," Papers 13-96, Tel Aviv.
  14. Hassler, John & Rodriguez Mora, Jose V., 1999. "Employment turnover and the public allocation of unemployment insurance," Journal of Public Economics, Elsevier, vol. 73(1), pages 55-83, July.
  15. Alberto Alesina & George-Marios Angeletos, 2002. "Fairness and Redistribution: US versus Europe," Harvard Institute of Economic Research Working Papers 1983, Harvard - Institute of Economic Research.
  16. Van Reenen, John & Caroli, Eve, 2001. "Skill-Biased Organizational Change? Evidence from a panel of British and French establishments," Economics Papers from University Paris Dauphine 123456789/10093, Paris Dauphine University.
  17. Huw Lloyd-Ellis, 1999. "Endogenous Technological Change and Wage Inequality," American Economic Review, American Economic Association, vol. 89(1), pages 47-77, March.
  18. Lindbeck, Assar, 1995. " Welfare State Disincentives with Endogenous Habits and Norms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 477-94, December.
  19. Lee, Woojin & Roemer, John E, 1998. " Income Distribution, Redistributive Politics, and Economic Growth," Journal of Economic Growth, Springer, vol. 3(3), pages 217-40, September.
  20. Legros, Patrick & Newman, Andrew F., 1996. "Wealth Effects, Distribution, and the Theory of Organization," Journal of Economic Theory, Elsevier, vol. 70(2), pages 312-341, August.
  21. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. Eli Berman & John Bound & Stephen Machin, 1998. "Implications Of Skill-Biased Technological Change: International Evidence," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1245-1279, November.
  23. Bourguignon, Francois & Verdier, Thierry, 2000. "Oligarchy, democracy, inequality and growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 285-313, August.
  24. Philippe Aghion, 2002. "Schumpeterian Growth Theory and the Dynamics of Income Inequality," Econometrica, Econometric Society, vol. 70(3), pages 855-882, May.
  25. Saint-Paul, Gilles, 1994. "The Dynamics of Exclusion and Fiscal Conservatism," CEPR Discussion Papers 998, C.E.P.R. Discussion Papers.
  26. Gradstein, Mark & Justman, Moshe, 1997. " Democratic Choice of an Education System: Implications for Growth and Income Distribution," Journal of Economic Growth, Springer, vol. 2(2), pages 169-83, July.
  27. Gene M. Grossman, 2004. "The Distribution of Talent and the Pattern and Consequences of International Trade," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 209-239, February.
  28. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1001-1026.
  29. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc.
  30. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," NBER Working Papers 5956, National Bureau of Economic Research, Inc.
  31. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  32. Moav, Omer, 2002. "Income distribution and macroeconomics: the persistence of inequality in a convex technology framework," Economics Letters, Elsevier, vol. 75(2), pages 187-192, April.
  33. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  34. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  35. Tamura, Robert, 1992. "Efficient equilibrium convergence: Heterogeneity and growth," Journal of Economic Theory, Elsevier, vol. 58(2), pages 355-376, December.
  36. Persson, Torsten & Tabellini, Guido, 1991. "Is Inequality Harmful for Growth? Theory and Evidence," Department of Economics, Working Paper Series qt00x7n68q, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  37. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
  38. Krusell, P. & Rios-Rull, J.V., 1993. "Vested Interests in a Positive Theory of Stagnation and Growth," Papers 547, Stockholm - International Economic Studies.
  39. Daron Acemoglu, 2002. "Cross-Country Inequality Trends," NBER Working Papers 8832, National Bureau of Economic Research, Inc.
  40. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  41. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  42. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  43. Piketty, Thomas, 1995. "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 551-84, August.
  44. Romer, Paul M, 1987. "Growth Based on Increasing Returns Due to Specialization," American Economic Review, American Economic Association, vol. 77(2), pages 56-62, May.
  45. Alberto Alesina & George-Marios Angeletos, 2005. "Fairness and Redistribution," American Economic Review, American Economic Association, vol. 95(4), pages 960-980, September.
  46. Figini, P, 1999. "Inequality and Growth Revisited," Trinity Economics Papers 992, Trinity College Dublin, Department of Economics.
  47. Fernandez, Raquel & Rogerson, Richard, 1998. "Public Education and Income Distribution: A Dynamic Quantitative Evaluation of Education-Finance Reform," American Economic Review, American Economic Association, vol. 88(4), pages 813-33, September.
  48. Richard B. Freeman, 1996. "Labor market institutions and earnings inequality," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 157-172.
  49. Piketty, Thomas, 1997. "The Dynamics of the Wealth Distribution and the Interest Rate with Credit Rationing," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 173-89, April.
  50. Aghion, Philippe, 2002. "Schumpeterian Growth Theory and the Dynamics of Income Inequality," Scholarly Articles 3350067, Harvard University Department of Economics.
  51. International Monetary Fund, 2003. "Income Inequality and Redistributive Government Spending," IMF Working Papers 03/14, International Monetary Fund.
  52. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't The US Have a European-Style Welfare State?," Harvard Institute of Economic Research Working Papers 1933, Harvard - Institute of Economic Research.
  53. Galor, Oded & Moav, Omer, 1998. "Ability Biased Technological Transition, Wage Inequality and Growth," CEPR Discussion Papers 1972, C.E.P.R. Discussion Papers.
  54. Nicole M. Fortin & Thomas Lemieux, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring.
  55. Seshadri, Ananth & Yuki, Kazuhiro, 2004. "Equity and efficiency effects of redistributive policies," Journal of Monetary Economics, Elsevier, vol. 51(7), pages 1415-1447, October.
  56. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 818-34, August.
  57. Kreps, David M & Porteus, Evan L, 1979. "Dynamic Choice Theory and Dynamic Programming," Econometrica, Econometric Society, vol. 47(1), pages 91-100, January.
  58. Fellman, J, 1976. "The Effect of Transformations on Lorenz Curves," Econometrica, Econometric Society, vol. 44(4), pages 823-24, July.
  59. Loury, Glenn C, 1981. "Intergenerational Transfers and the Distribution of Earnings," Econometrica, Econometric Society, vol. 49(4), pages 843-67, June.
  60. Freeman, Richard B, 1995. "The Large Welfare State as a System," American Economic Review, American Economic Association, vol. 85(2), pages 16-21, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4741. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.