IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The effects of technical change on labor market inequalities

  • Andreas Hornstein
  • Per Krusell
  • Giovanni L. Violante

In this chapter we inspect economic mechanisms through which technological progress shapes the degree of inequality among workers in the labor market. A key focus is on the rise of U.S. wage inequality over the past 30 years. However, we also pay attention to how Europe did not experience changes in wage inequality but instead saw a sharp increase in unemployment and an increased labor share of income, variables that remained stable in the U.S. We hypothesize that these changes in labor market inequalities can be accounted for by the wave of capital-embodied technological change, which we also document. We propose a variety of mechanisms based on how technology increases the returns to education, ability, experience, and "luck" in the labor market. We also discuss how the wage distribution may have been indirectly influenced by technical change through changes in certain aspects of the organization of work, such as the hierarchical structure of firms, the extent of unionization, and the degree of centralization of bargaining. To account for the U.S.-Europe differences, we use a theory based on institutional differences between the United States and Europe, along with a common acceleration of technical change. Finally, we briefly comment on the implications of labor market inequalities for welfare and for economic policy.

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.richmondfed.org/publications/research/working_papers/2004/wp_04-8.cfm
Download Restriction: no

File URL: http://www.richmondfed.org/publications/research/working_papers/2004/pdf/wp04-8.pdf
Download Restriction: no

Paper provided by Federal Reserve Bank of Richmond in its series Working Paper with number 04-08.

as
in new window

Length:
Date of creation: 2004
Date of revision:
Handle: RePEc:fip:fedrwp:04-08
Contact details of provider: Web page: http://www.richmondfed.org/

More information through EDIRC

Order Information: Web: http://www.richmondfed.org/publications/ 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. Cohen, Daniel, 1999. "Welfare differentials across French and US labor markets $e_A general equilibrium interpretation," CEPREMAP Working Papers (Couverture Orange) 9904, CEPREMAP.
  2. Freeman, Richard B, 1988. "Contraction and Expansion: The Divergence of Private Sector and Public Sector Unionism in the United States," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 63-88, Spring.
  3. Andreas Hornstein & Per Krusell, 1996. "Can Technology Improvements Cause Productivity Slowdowns?," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 209-276 National Bureau of Economic Research, Inc.
  4. Aghion, Philippe, 2002. "Schumpeterian Growth Theory and the Dynamics of Income Inequality," Scholarly Articles 3350067, Harvard University Department of Economics.
  5. Gilles Saint Paul, 1999. "On the distribution of income and worker assignment under intra-firm spillovers, with an application to ideas and networks," Economics Working Papers 417, Department of Economics and Business, Universitat Pompeu Fabra.
  6. Daron Acemoglu, 1998. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," NBER Working Papers 6658, National Bureau of Economic Research, Inc.
  7. King, Ian & Welling, Linda, 1995. "Search, unemployment, and growth," Journal of Monetary Economics, Elsevier, vol. 35(3), pages 499-507, June.
  8. ., 1994. "Firm, Theoru of the (II)," Chapters, in: The Elgar Companion to Institutional and Evolutionary Economics, chapter 45 Edward Elgar Publishing.
  9. Henry S. Farber & Bruce Western, 2000. "Round Up The Usual Suspects: The Decline of Unions in The Private Sector, 1973-1998," Working Papers 816, Princeton University, Department of Economics, Industrial Relations Section..
  10. Henry S. Farber & Bruce Western, 2002. "Ronald Reagan and the Politics of Declining Union Organization," British Journal of Industrial Relations, London School of Economics, vol. 40(3), pages 385-401, 09.
  11. Oded Galor & Omer Moav, 2000. "Ability-Biased Technological Transition, Wage Inequality, and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 469-497.
  12. Christopher J. Flinn, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 611-645.
  13. Daron Acemoglu, 2003. "Labor- And Capital-Augmenting Technical Change," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 1-37, 03.
  14. Erik Brynjolfsson & Lorin M. Hitt, 2000. "Beyond Computation: Information Technology, Organizational Transformation and Business Performance," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 23-48, Fall.
  15. repec:ucp:bknber:9780226304557 is not listed on IDEAS
  16. Elhanan Helpman & Antonio Rangel, 1998. "Adjusting to a New Technology: Experience and Training," Harvard Institute of Economic Research Working Papers 1833, Harvard - Institute of Economic Research.
  17. Hans Hansen, 1998. "Transition from unemployment benefits to social assistance in seven European OECD countries," Empirical Economics, Springer, vol. 23(1/2), pages 5-30.
  18. Bentolila, Samuel & Saint-Paul, Gilles, 1998. "Explaining Movements in the Labour Share," CEPR Discussion Papers 1958, C.E.P.R. Discussion Papers.
  19. Claudia Goldin & Robert A. Margo, 1992. "The Great Compression: The Wage Structure in the United States at Mid-Century," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 1-34.
  20. Gould, Eric D. & Paserman, M. Daniele, 2003. "Waiting for Mr. Right: rising inequality and declining marriage rates," Journal of Urban Economics, Elsevier, vol. 53(2), pages 257-281, March.
  21. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
  22. Narayana Kocherlakota, 2010. "Implications of Efficient Risk Sharing Without Commitment," Levine's Working Paper Archive 2053, David K. Levine.
  23. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
  24. Blau, Francine D & Kahn, Lawrence M, 1997. "Swimming Upstream: Trends in the Gender Wage Differential in 1980s," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 1-42, January.
  25. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  26. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc.
  27. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc.
  28. Karnit Flug & Zvi Hercowitz, 2000. "Equipment Investment and the Relative Demand for Skilled Labor: International Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 461-485, July.
  29. John DiNardo & Nicole M. Fortin & Thomas Lemieux, 1995. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," NBER Working Papers 5093, National Bureau of Economic Research, Inc.
  30. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, 01.
  31. James Heckman, 2011. "Policies to foster human capital," Educational Studies, Higher School of Economics, issue 3, pages 73-137.
  32. Orazio Attanasio & Steven J. Davis, 1994. "Relative Wage Movements and the Distribution of Consumption," NBER Working Papers 4771, National Bureau of Economic Research, Inc.
  33. Dirk Krueger & Fabrizio Perri, 2004. "On the Welfare Consequences of the Increase in Inequality in the United States," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 83-138 National Bureau of Economic Research, Inc.
  34. Haider, S.J., 2000. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Papers 00-15, RAND - Labor and Population Program.
  35. Patrick Bolton & Mathias Dewatripont, 1994. "The Firm as a Communication Network," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 809-839.
  36. Malkiel, Burton & Campbell, John & Lettau, Martin & Xu, Yexiao, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Scholarly Articles 3128707, Harvard University Department of Economics.
  37. Stephen D. Oliner & Daniel E. Sichel, 2000. "The resurgence of growth in the late 1990s: is information technology the story?," Proceedings, Federal Reserve Bank of San Francisco.
  38. Card, David, 1996. "The Effect of Unions on the Structure of Wages: A Longitudinal Analysis," Econometrica, Econometric Society, vol. 64(4), pages 957-79, July.
  39. Caroli, Eve & Van Reenen, John, 1999. "Skill biased organizational change? Evidence from a panel of British and French establishments," CEPREMAP Working Papers (Couverture Orange) 9917, CEPREMAP.
  40. Chinhui Juhn, 1992. "Decline of Male Labor Market Participation: The Role of Declining Market Opportunities," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 79-121.
  41. Dirk Krueger & Krishna B. Kumar, 2003. "Skill-specific rather then General Education: A Reason for US-Europe Growth Differences?," NBER Working Papers 9408, National Bureau of Economic Research, Inc.
  42. Trajtenberg, M. & Bresnahan, T.F., 1992. "General Purpose Technologies: "Engines of Growth"," Papers 16-92, Tel Aviv.
  43. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, March.
  44. Greenwood, J. & Yorukoglu, M., 1996. "1974," RCER Working Papers 429, University of Rochester - Center for Economic Research (RCER).
  45. Ann P. Bartel & Nachum Sicherman, 1995. "Technological Change and the Skill Acquisition of Young Workers," NBER Working Papers 5107, National Bureau of Economic Research, Inc.
  46. David Neumark, 2000. "Changes in Job Stability and Job Security: A Collective Effort to Untangle, Reconcile, and Interpret the Evidence," NBER Working Papers 7472, National Bureau of Economic Research, Inc.
  47. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  48. Krueger, Dirk & Perri, Fabrizio, 2005. "Does income inequality lead to consumption inequality? Evidence and theory," CFS Working Paper Series 2005/15, Center for Financial Studies (CFS).
  49. Hyunbae Chun, 2003. "Information Technology and the Demand for Educated Workers: Disentangling the Impacts of Adoption versus Use," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 1-8, February.
  50. Gilles Duranton, 1998. "The Economics of Productive Systems: Segmentation and Skill-Biased Change," CEP Discussion Papers dp0398, Centre for Economic Performance, LSE.
  51. Dale T. Mortensen & Christopher A. Pissarides, 1998. "Technological Progress, Job Creation and Job Destruction," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 733-753, October.
  52. Addison, John T. & Bailey, Ralph & Siebert, W. Stanley, 2003. "The Impact of Deunionisation on Earnings Dispersion Revisited," IZA Discussion Papers 724, Institute for the Study of Labor (IZA).
  53. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 1-41.
  54. Shouyong Shi, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Biased Technology," Review of Economic Studies, Oxford University Press, vol. 69(2), pages 467-491.
  55. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, vol. 82(4), pages 964-80, September.
  56. Andreas Hornstein & Per Krusell, 2003. "Implications of the capital-embodiment revolution for directed R&D and wage inequality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 25-50.
  57. repec:fth:prinin:306 is not listed on IDEAS
  58. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
  59. Paul Beaudry & David A. Green, 2003. "Wages and Employment in the United States and Germany: What Explains the Differences?," American Economic Review, American Economic Association, vol. 93(3), pages 573-602, June.
  60. Borghans,Lex & Weel,Bas,ter, 2002. "The Diffusion of Computers and the Distribution of Wages," Research Memorandum 039, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  61. Paul Segerstrom & Elias Dinopoulos, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June.
  62. Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February.
  63. Guido Cozzi & Giammario Impullitti, . "Technology Policy and Wage Inequality," Working Papers 2008_23, Business School - Economics, University of Glasgow, revised Oct 2006.
  64. Matthew F. Mitchell, 2005. "Specialization And The Skill Premium In The 20th Century," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 935-955, 08.
  65. 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.).
  66. David Thesmar & Mathias Thoenig, 2000. "Creative Destruction and Firm Organization Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1201-1237.
  67. William T. Dickens & Jonathan S. Leonard, 1985. "Accounting for the Decline in Union Membership, 1950–1980," ILR Review, Cornell University, ILR School, vol. 38(3), pages 323-334, April.
  68. 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.
  69. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
  70. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
  71. Johnson, David & Shipp, Stephanie, 1997. "Trends in Inequality Using Consumption-Expenditures: The U.S. from 1960 to 1993," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(2), pages 133-52, June.
  72. Timothy F. Bresnahan & Erik Brynjolfsson & Lorin M. Hitt, 2002. "Information Technology, Workplace Organization, and the Demand for Skilled Labor: Firm-Level Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 339-376.
  73. Iversen, Torben, 1998. "Wage Bargaining, Central Bank Independence, and the Real Effects of Money," International Organization, Cambridge University Press, vol. 52(03), pages 469-504, June.
  74. Richard Rogerson, 2004. "Two Views on the Deterioration of European Labor Market Outcomes," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 447-455, 04/05.
  75. Jason G. Cummins & Giovanni L. Violante, 2002. "Investment-Specific Technical Change in the US (1947-2000): Measurement and Macroeconomic Consequences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 243-284, April.
  76. Comin, D. & Mulani, S., 2003. "Diverging Trends in Macro and Micro Volatility: Facts," Working Papers 03-08, C.V. Starr Center for Applied Economics, New York University.
  77. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  78. Ingram, Beth & Neumann, George, 1999. "An Analysis of the Evolution of the Skill Premium," Working Papers 99-08, University of Iowa, Department of Economics.
  79. Sattinger, Michael, 1995. "Search and the Efficient Assignment of Workers to Jobs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 283-302, May.
  80. anonymous, 1994. "Research confirms rationality of analysts' forecasts," Economics Update, Federal Reserve Bank of Atlanta, issue Apr, pages 2.
  81. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
  82. Philippe Aghion, 2002. "Schumpeterian Growth Theory and the Dynamics of Income Inequality," Econometrica, Econometric Society, vol. 70(3), pages 855-882, May.
  83. Giovanni L. Violante, 2002. "Technological Acceleration, Skill Transferability, and the Rise in Residual Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 297-338.
  84. ., 1994. "Firm, Boundaries of the," Chapters, in: The Elgar Companion to Institutional and Evolutionary Economics, chapter 43 Edward Elgar Publishing.
  85. Mathias Dewatripont & Patrick Bolton, 1994. "The firm as a communication network," ULB Institutional Repository 2013/9595, ULB -- Universite Libre de Bruxelles.
  86. Stephen Machin, 2000. "Union Decline in Britain," CEP Discussion Papers dp0455, Centre for Economic Performance, LSE.
  87. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
  88. Hall, Robert E, 1973. "The Specification of Technology with Several Kinds of Output," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 878-92, July-Aug..
  89. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  90. Krueger, Dirk & Perri, Fabrizio, 2002. "Does Income Inequality Lead to Consumption Inequality?," CEPR Discussion Papers 3583, C.E.P.R. Discussion Papers.
  91. David Card, 2001. "The Effect of Unions on Wage Inequality in the U.S. Labor Market," ILR Review, Cornell University, ILR School, vol. 54(2), pages 296-315, January.
  92. Raghuram G. Rajan & Julie Wulf, 2006. "The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 759-773, November.
  93. Donghoon Lee & Kenneth I. Wolpin, 2004. "Intersectoral Labor Mobility and the Growth of the Service Sector," PIER Working Paper Archive 04-036, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  94. ., 1994. "Firm, Theoru of the (I)," Chapters, in: The Elgar Companion to Institutional and Evolutionary Economics, chapter 44 Edward Elgar Publishing.
  95. Rodolfo E. Manuelli, 2000. "Technological Change, the Labor Market and the Stock Market," NBER Working Papers 8022, National Bureau of Economic Research, Inc.
  96. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
  97. Dooley, Martin D & Gottschalk, Peter, 1984. "Earnings Inequality among Males in the United States: Trends and the Effect of Labor Force Growth," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 59-89, February.
  98. Andreas Hornstein, 1999. "Growth accounting with technological revolutions," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-22.
  99. David, Paul A, 1990. "The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox," American Economic Review, American Economic Association, vol. 80(2), pages 355-61, May.
  100. Robert J. Gordon, 1990. "The Measurement of Durable Goods Prices," NBER Books, National Bureau of Economic Research, Inc, number gord90-1, 07.
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:fip:fedrwp:04-08. 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: (Christian Pascasio)

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.