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Learning New Technology: The Polarization of the Wage Distribution

Listed author(s):
  • 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)

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.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 15-42.

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Date of creation: Nov 2015
Handle: RePEc:rim:rimwps:15-42
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