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Learning New Technology: the Polarization of the Wage Distribution

Author

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  • Manuel Hidalgo-Pérez

    () (Department of Economics, Universidad Pablo de Olavide)

  • Benedetto Molinari

    () (Department of Economics, Universidad Pablo de Olavide)

Abstract

This paper presents novel evidence regarding the relationship between technological progress, occupational tasks and wage inequality. By applying a counterfactual quantile regression analysis to historic U.S. data, we show that the evolution of wage inequality in the lower echelon of the wage distribution was due entirely to a reduction of within-group wage inequality, which was determined, in turn, by more homogeneous remuneration paid to workers performing routine tasks. Changes in the differential between the remuneration paid to technology-complementary and technology-substitute tasks had only a negligible impact on wage inequality among low-wage workers, which casts some doubt on the validity of basing a theory of wage inequality on routinization-biased technical change operating through a labor demand channel. To reconcile the routinization hypothesis with the data, we develop a model in which skill-heterogeneous workers face endogenous occupational choices and learning costs in connection with operating a new technology. Even in the absence of changes in wage differentials, the model argues that technical change can generate an empirically consistent non-monotone effect on wage inequality by affecting the average level of skills within different groups of workers.

Suggested Citation

  • Manuel Hidalgo-Pérez & Benedetto Molinari, 2015. "Learning New Technology: the Polarization of the Wage Distribution," Working Papers 15.01, Universidad Pablo de Olavide, Department of Economics.
  • Handle: RePEc:pab:wpaper:15.01
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    References listed on IDEAS

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    Cited by:

    1. Guido Matias Cortes & Manuel Alejandro Hidalgo, 2015. "Changes in the Return to Skills and the Variance of Unobserved Ability," Working Paper series 15-45, Rimini Centre for Economic Analysis.

    More about this item

    Keywords

    Residual Wage Inequality; Wage Polarization; Price and Composition Effects; Routinization hypothesis; Skill Biased Technical Change; Occupational Tasks; Job Polarization.;

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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