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Wage Inequality and Lobbying: a directed technical change approach

Author

Listed:
  • Tiago Neves Sequeira

    (Centre for Business and Economics CeBER and Faculty of Economics, University of Coimbra)

  • Óscar Afonso

    (CEF-UP, and Faculty of Economics of University of Porto)

Abstract

We devise a generalized Directed Technical Change growth model in which firms spend resources in lobbying activity. As expected, the presence of lobbying distorts the skill premium and economic growth. Lobbying also contributes to a lower technological-knowledge bias toward the skill-sector and constitutes a possible explanation for the diverging empirical evidence on the relationship between the skill premium and the relative supply of skills. An increase in the relative lobbying power of the skilled intensive intermediate goods firms can lead to an increase or decrease in the skill premium, depending on the elasticity of substitution between the skilled and unskilled sectors. Lobbying also introduces possibility of a dual economy, with two different steady states, one characterized by low growth and another by high growth, depending on a threshold level of the lobbying power and on the elasticity of substitution. Quantitative exercises show that lobbying can indeed be quite important in distorting the skill premium and the economic growth.

Suggested Citation

  • Tiago Neves Sequeira & Óscar Afonso, 2020. "Wage Inequality and Lobbying: a directed technical change approach," CeBER Working Papers 2020-05, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2020-05
    as

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    More about this item

    Keywords

    Directed technical change; lobbying power; ineficiency; economic growth; wage inequality; quantitative implications.;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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