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Wage Dispersion and Technical Progress

  • Pierre-Richard Agenor
  • Joshua Aizenman

Since the early 1980s, wage dispersion and the ratio of skilled to unskilled employment have increased significantly in several industrial countries. A number of economists have attributed these trends to skill-biased technical progress. This paper studies the wage and employment effects of technological changes of this type. The analysis is based on a model with a heterogeneous work force and a segmented labor market. Skill-biased technical progress is modeled as a shock that switches demand from unskilled to skilled labor in the primary, high-wage sector, while leaving the total demand for labor in that sector constant at initial wages. Such a shock reduces total employment in the primary sector, as the equilibrium increase in skilled labor employment is smaller than the fall in employment of unskilled labor. Efficiency factors are shown to magnify the adverse employment effects of pro-skilled technical change.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5417.

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Date of creation: Jan 1996
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Publication status: Published as "Technology change, relative wages and unemployment," in the European Economic Review, Vol. 41, no. 2 (April 1997): 187-206.
Handle: RePEc:nbr:nberwo:5417
Note: ITI
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. David A. Brauer & Susan Hickok, 1995. "Explaining the growing inequality in wages across skill levels," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 61-75.
  2. Joshua Aizenman & Pierre-Richard Agénor, 1994. "Technological Change, Relative Wages, and Unemployment," IMF Working Papers 94/111, International Monetary Fund.
  3. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May.
  4. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
  5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  6. Jeffrey D. Sachs & Howard J. Shatz, 1994. "Trade and Jobs in Manufacturing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 1-84.
  7. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
  8. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
  9. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers 317, London School of Economics - Centre for Labour Economics.
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