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Learning New Technology: The Polarization of the Wage Distribution

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  • Manuel Hidalgo-Perez

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

  • Benedetto Molinari

    () (Department of Economics, Universidad Pablo de Olavide, USA; The Rimini Centre for Economic Analysis, Italy)

Abstract

This paper revisits the relationship between wage inequality and technological progress. By applying counterfactual quantile regressions to historic U.S. data, we show that the reduction of wage inequality among low-wage workers generated by routinization-biased technical change was fully driven by a reduction of within-group inequality, which was determined by more homogeneous remunerations paid to routine workers. Changes in wage differentials between workers performing technology-neutral and technology-substitute tasks played instead a negligible role, which casts some doubt on a theory of technical change operating through a labor-demand channel. To reconcile the theory with data, we develop a model in which skill-heterogeneous workers face endogenous occupational choices and learning costs in connection with operating a new technology. In this model, when wage differentials are fixed technical change still generates an empirically-consistent non-monotone effect on wage inequality by affecting the average levels of skills within different groups of workers.

Suggested Citation

  • Manuel Hidalgo-Perez & Benedetto Molinari, 2015. "Learning New Technology: The Polarization of the Wage Distribution," Working Paper series 15-42, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:15-42
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    References listed on IDEAS

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    Cited by:

    1. Guido Matías Cortés & Manuel Hidalgo-Pérez, 2015. "Changes in the Return to Skills and the Variance of Unobserved Ability," Working Papers 15.15, Universidad Pablo de Olavide, Department of Economics.

    More about this item

    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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