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Skill-Biased Technological Change, Organizational Change, and Wage Inequality

  • Kohei Daido

    ()

    (School of Economics, Kwansei Gakuin University)

  • Ken Tabata

    ()

    (School of Economics, Kwansei Gakuin University)

We build a general equilibrium model of monopolistic competition with moral hazard contracting to examine the interactions among skill-biased technological change (SBTC), organizational changes, and skill premium and within-group wage inequality. While the existing literature finds that the increase in the skilled labor ratio induces SBTC and raises the skill premium, we show that SBTC leads to organizational change toward decentralization by delegating authority within firms, which inuences the reward schedule for delegated skilled managers. This organizational change results in the following: (1) the further increase in the skill premium and (2) the rapid expansion of wage inequality among skilled individuals (between skilled workers and skilled managers). Moreover, we find that there are multiple equilibria where the centralized and decentralized organizational modes simultaneously emerge at the intermediate values of the skilled labor ratio.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp84.pdf
File Function: First version, 2012
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Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 84.

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Length: 31 pages
Date of creation: Feb 2012
Date of revision: Feb 2012
Handle: RePEc:kgu:wpaper:84
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  1. Dennis Görlich & Dennis Snower, 2010. "Wage Inequality and the Changing Organization of Work," Kiel Working Papers 1588, Kiel Institute for the World Economy.
  2. Bloom, Nicholas & Sadun, Raffaella & Van Reenen, John, 2009. "The Organization of Firms Across Countries," CEPR Discussion Papers 7338, C.E.P.R. Discussion Papers.
  3. Marin, Dalia & Verdier, Thierry, 2009. "Power in the multinational corporation in industry equilibrium," Munich Reprints in Economics 19264, University of Munich, Department of Economics.
  4. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, MIT Press, vol. 124(2), pages 843-881, May.
  5. Nikolowa, Radoslawa, 2010. "Supply of skilled labour and organizational change," Labour Economics, Elsevier, vol. 17(3), pages 514-522, June.
  6. Michal Jerzmanowski & Malhar Nabar, 2013. "Financial Development And Wage Inequality: Theory And Evidence," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 211-234, 01.
  7. Marin, Dalia & Verdier, Thierry, 2006. "Power Inside the Firm and the Market: A General Equilibrium Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 109, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  8. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273, March.
  9. Haskel, Jonathan & Slaughter, Matthew J, 2001. "Trade, Technology and U.K. Wage Inequality," Economic Journal, Royal Economic Society, vol. 111(468), pages 163-87, January.
  10. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
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