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Employer Power, Labor Saving Technical Change, and Inequality

Author

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  • Chau, Nancy H.

    (Cornell University)

  • Kanbur, Ravi

    (Cornell University)

Abstract

How does employer power mediate the impact of labor saving technical change on inequality? This question has largely been neglected in the recent literature on the wage and distributional consequences of automation, where the labor market is assumed to be competitive. In a simple task-based model, with search frictions which generate an equilibrium wage distribution even with identical firms and workers, we explore the implications of labor saving technical change for equilibrium outcomes. We show that employer power is a crucial determinant of the nuanced comparative statics of technical change. Among a range of results, we show the possibility of Kuznetsian inverse-U relationships between employer power and inequality, and labor saving technical change and inequality. We further show that when employer power is sufficiently low, labor saving technical change can both increase total output and increase wage inequality. With free entry of firms, labor saving technical change leads to both a first order dominating shift in the age distribution and an increase in the Gini coefficient of wage inequality.

Suggested Citation

  • Chau, Nancy H. & Kanbur, Ravi, 2018. "Employer Power, Labor Saving Technical Change, and Inequality," IZA Discussion Papers 11519, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11519
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    Cited by:

    1. Ravi Kanbur, 2019. "Inequality in a global perspective," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(3), pages 431-444.
    2. Kanbur, Ravi, 2020. "Economic Inequality and Academic Freedom," Working Papers 309988, Cornell University, Department of Applied Economics and Management.
    3. Juzhong Zhuang, 2023. "Income and Wealth Inequality in Asia and the Pacific: Trends, Causes, and Policy Remedies," Asian Economic Policy Review, Japan Center for Economic Research, vol. 18(1), pages 15-41, January.
    4. Jaume, David, 2021. "The labor market effects of an educational expansion," Journal of Development Economics, Elsevier, vol. 149(C).

    More about this item

    Keywords

    search model; wage inequality; labor saving technical change; employer power; equilibrium wage distribution;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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