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Inequality, Technology, and the Social Contract

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  • Roland Benabou

    (Princeton University, NBER, CEPR, IRP and BREAD)

Abstract

The distribution of human capital and income lies at the center of a nexus of forces that shape a country's economic, institutional and technological structure. I develop here a unified model to analyze these interactions and their growth consequences. Five main issues are addressed. First, I identify the key factors that make both European-style "welfare state" and US-style laissez-faire social contracts sustainable.; I also compare the growth rates of these two politico-economic steady states, which are no Pareto-rankable. Second, I examine how technological evolutions affect the set of redistributive institutions that can be durably sustained, showing in particular how skill-biased technical change may cause the welfare state to unravel. Third, I model the endogenous determination of technology or organizational form that results from firms? tailoring the flexibility of their production processes to the distribution of workers' skills. The greater is human capital heterogeneity, the more flexible and wage-disequalizing is the equilibrium technology. Moreover, firms? choices tend to generate excessive flexibility, resulting in suboptimal growth or even self-sustaining technology-inequality traps. Fourth, I examine how institutions also shape the course of technology; thus, a world-wide shift in the technology frontier results in different evolutions of production processes and skill premia across countries with different social contracts. Finally, I ask what joint configurations of technology, inequality and redistributive policy are feasible in the long run, when all three are endogenous. I show in particular how the diffusion of technology leads to the ?exporting? of inequality across borders; and how this, in turn, generates spillovers between social contracts that make it more difficult for nations to maintain distinct institutions and social structures.

Suggested Citation

  • Roland Benabou, 2003. "Inequality, Technology, and the Social Contract," Working Papers 141, Princeton University, School of Public and International Affairs, Discussion Papers in Economics.
  • Handle: RePEc:pri:wwseco:dp226.pdf
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    2. Marianne Saam, 2005. "Openness To Trade as a Determinant of the Elasticity of Substitution between Capital and Labor," DEGIT Conference Papers c010_013, DEGIT, Dynamics, Economic Growth, and International Trade.
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    4. Alberto Alesina & Stelios Michalopoulos & Elias Papaioannou, 2016. "Ethnic Inequality," Journal of Political Economy, University of Chicago Press, vol. 124(2), pages 428-488.
    5. Crowe, Christopher, 2004. "Inflation, inequality and social conflict," LSE Research Online Documents on Economics 19932, London School of Economics and Political Science, LSE Library.
    6. Daron Acemoglu, 2007. "Equilibrium Bias of Technology," Econometrica, Econometric Society, vol. 75(5), pages 1371-1409, September.
    7. Chang-Tai Hsieh & Edward Miguel & Daniel Ortega & Francisco Rodriguez, 2011. "The Price of Political Opposition: Evidence from Venezuela's Maisanta," American Economic Journal: Applied Economics, American Economic Association, vol. 3(2), pages 196-214, April.
    8. Parantap Basu & Yoseph Getachew, 2020. "Redistributive innovation policy, inequality, and efficiency," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(3), pages 532-554, June.
    9. Daron Acemoglu & James A. Robinson, 2008. "Persistence of Power, Elites, and Institutions," American Economic Review, American Economic Association, vol. 98(1), pages 267-293, March.
    10. repec:ebl:ecbull:v:15:y:2005:i:11:p:1-9 is not listed on IDEAS
    11. Wolnicki Miron & Piasecki Ryszard, 2015. "The Realities and Illusions of the XXIst Century Social Contract," Journal of Intercultural Management, Sciendo, vol. 7(2), pages 165-179, June.
    12. Chris Crowe, 2004. "Inflation, Inequality and Social Conflict," Money Macro and Finance (MMF) Research Group Conference 2004 69, Money Macro and Finance Research Group.
    13. Anne Jurkat & Rainer Klump, 2009. "Endogenous Specialization and Factor Substitution in a Monetary Growth Model," DEGIT Conference Papers c014_036, DEGIT, Dynamics, Economic Growth, and International Trade.
    14. Vollrath, Dietrich, 2008. "Wealth Distribution and the Provision of Public Goods: Evidence from the United States," MPRA Paper 11534, University Library of Munich, Germany.
    15. Bombardini, Matilde & Gallipoli, Giovanni & Pupato, Germán, 2014. "Unobservable skill dispersion and comparative advantage," Journal of International Economics, Elsevier, vol. 92(2), pages 317-329.
    16. Getachew, Yoseph Y. & Turnovsky, Stephen J., 2020. "Redistribution, inequality, and efficiency with credit constraints: Implications for South Africa," Economic Modelling, Elsevier, vol. 93(C), pages 259-277.
    17. Miquel Pellicer & Vimal Ranchhod & Mare Sarr & Eva Wegner, 2011. "Inequality Traps in South Africa: An overview and research agenda," SALDRU Working Papers 57, Southern Africa Labour and Development Research Unit, University of Cape Town.
    18. Hiermeyer, Martin, 2008. "The trade-off between a high and an equal biological standard of living--Evidence from Germany," Economics & Human Biology, Elsevier, vol. 6(3), pages 431-445, December.

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    More about this item

    Keywords

    inequality; welfare state; technical change; skill bias; human capital; redistribution; social contract; political economy;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • H10 - Public Economics - - Structure and Scope of Government - - - General

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