The determinants of long-run inequality

Andrea, Canidio (2010): The determinants of long-run inequality.

Abstract

I explore the effect of skill-biased technological change on long-run inequality by building a model where the supply of skilled and unskilled workers, the cost of education, and credit rationing are endogenous. In the model, the existence of unequal steady states does not depend on the degree of technological skill bias, but on the credit market, the cost of education, and the growth rate of the economy. However, by building an appropriate measure of inequality, I show that when unequal steady states exist, economies with a higher technological skill bias have a greater long-run inequality. Therefore, the impact of skill-biased technological change on inequality may be permanent.

• Item Type: MPRA Paper
• Language: English
• Keywords: Endogenous Inequality; Skill Bias; Credit Rationing; Growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J62 - Job, Occupational, and Intergenerational Mobility; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

References

Acemoglu, D. (2002, March). Technical change, inequality, and the labor market. Journal of Economic Literature 40 (1), 7–27.

Aghion, P. and P. Bolton (1997, April). A theory of trickle-down growth and development. Review of Economic Studies 64 (2), 151–172.

Atkinson, A. B. (1970). On the measurement of inequality. Journal of Economic Theory 2, 244–263.

Autor, D. H., L. F. Katz, and M. S. Kearney (2005, October). Trends in u.s. wage in- equality: Re-assessing the revisionists. Harvard Institute of Economic Research Working Papers (2095).

Banerjee, A. V. and A. F. Newman (1993, April). Occupational chioce and the process of development. The Journal of Political Economy 101 (2), 274–298.

Becker, G. and N. Tomes (1979). An equilibrium theory of the distribution of income and intergenerational mobility. The Journal of Political Economy, 1153–1189.

Galor, O. and O. Moav (2000, May). Ability-biased technological transition, wage inequality, and economic growth. The Quarterly Journal of Economics 115 (2), 469–497.

Galor, O. and J. Zeira (1993, January). Income distribution and macroeconomics. Review of Economic Studies 60 (1), 35–52.

Greenwood, J. and B. Jovanovic (1990). Financial development, growth, and the distribution of income. Journal of Political Economy 98 (5), 1076–1107.

Juhn, C., K. M. Murphy, and B. Pierce (1993, June). Wage inequality and the rise in returns to skill. The Journal of Political Economy 101 (3), 410–442.

Kuznets, S. (1955). Economic growth and income inequality. American Economic Association 1, 1–28.

Lemieux, T. (2006, June). Increasing residual wage inequality: Composition effects, noisy data, or rising demand for skill? The American Economic Revew 96 (3), 1–64.

Ljungqvist, L. (1993). Economic Underdevelopment: The Case of a Missing Market for Human Capital. Journal of Development Economics 40, 219–239.

Loury, G. (1981). Intergenerational transfers and the distribution of earnings. Econometrica: Journal of the Econometric Society, 843–867.

Matsuyama, K. (2000, October). Endogenous inequality. The Revew of Economic Studies 67 (4), 743–759.

Mookherjee, D. and S. Napel (2007). Intergenerational mobility and macroeconomic history dependence. Journal of Economic Theory 137 (1), 49–78.

Mookherjee, D., S. Prina, and D. Ray (2009). Endogenous fertility, inequality and human capital. working paper .

Mookherjee, D. and D. Ray (2003, April). Persistent inequality. Review of Economic Studies 70 (2), 368–394.

Mookherjee, D. and D. Ray (2006, October). Occupational diversity and endogenous in- equality. Boston University -Department of Economics - The institute for Economic Development Working Papers dp-142.

Piketty, T. (1997). The dynamics of the wealth distribution and the interest rate with credit rationing. Review of Economic Studies 64, 173–189.

Rigolini, J. (2004). Educational technologies, wages and technological progress. Journal of Development Economics 75.

Stiglitz, J. E. and A. Weiss (1981, June). Credit rationing in markets with imperfect information. The American Economic Revew 71 (3), 393–410.

Townsend, R. M. and K. Ueda (2006). Financial deepening, inequality, and growth: a model-based quantitative evaluation. Review of Economic Studies 73, 251–293.