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Accelerated Technological Progress - An Explanation for Wage Dispersion and a Possible Solution to the Productivity Paradox

  • Nikutowski, Oliver
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    Due to scarcity considerations an increase in the supply of college graduates should reduce the premium for this kind of qualification. Therefore it seems quite contradictory that a tremendous educational expansion in the USA is accompanied by rising wage dispersion (overall and between educational groups). A second seemingly paradox development, which occured simultaneously, is the reduction of the total factor productivity during the emergence of the computerage - the so called productivity paradox. This contribution offers a simple unified solution to both of these puzzles and explains the educational expansion by assuming accelerated technological progress: An increase in the speed of technological progress raises the economic value of prospective periods and therefore works in favor of timeconsuming higher qualifications. The resulting educational expansion firstly goes along with a composition effect which leads to wage dispersion. Secondly the additional absence from the labor market of some more able individuals, due to the longer qualification, as well as an increasing share of individuals who choose a less productive qualification may lead to a transitory slowdown of the productivity growth rate.

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    File URL: http://epub.ub.uni-muenchen.de/1925/1/AccSBTCvonON210507.pdf
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    Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 1925.

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    Date of creation: Aug 2007
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    Handle: RePEc:lmu:muenec:1925
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    1. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1995. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," NBER Chapters, in: Differences and Changes in Wage Structures, pages 25-66 National Bureau of Economic Research, Inc.
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    5. George J. Borjas & Richard B. Freeman & Lawrence F. Katz, 1992. "On the Labor Market Effects of Immigration and Trade," NBER Chapters, in: Immigration and the Workforce: Economic Consequences for the United States and Source Areas, pages 213-244 National Bureau of Economic Research, Inc.
    6. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
    7. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
    8. Coen N. Teulings, 2003. "The contribution of minimum wages to increasing wage inequality," Economic Journal, Royal Economic Society, vol. 113(490), pages 801-833, October.
    9. Booth, Alison L & Zoega, Gylfi, 2001. "Is Wage Compression a Necessary Condition for Firm-Financed General Training?," CEPR Discussion Papers 2845, C.E.P.R. Discussion Papers.
    10. David Card & Thomas Lemieux & W. Craig Riddell, 2003. "Unionization and Wage Inequality: A Comparative Study of the U.S, the U.K., and Canada," NBER Working Papers 9473, National Bureau of Economic Research, Inc.
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