DP2765 Technological Acceleration, Skill Transferability and the Rise in Residual Inequality
|Author(s):||Giovanni L. Violante|
|Publication Date:||May 2001|
|Keyword(s):||Earnings Instability, Skill Transferability, Technological Acceleration, Wage Inequality, Wage Loss Upon Displacement|
|JEL(s):||E24, J31, O30|
|Programme Areas:||Labour Economics, Public Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2765|
This Paper provides an interpretation for the recent rise in residual wage inequality which is consistent with the empirical observation that a sizeable part of this increase has a transitory nature, a feature that eludes standard models based on ex-ante heterogeneity in ability. In the model an acceleration in the rate of quality-improvement of equipment, like the one observed from the early 70's, reduces workers’ capacity to transfer skills from old to new machines. This force generates a rise in the cross-sectional variance of skills, and therefore of wages. Through calibration, the Paper shows that this mechanism can account for 30% of the surge in residual inequality in the US economy (or for most of its transitory component). Two key implications of the theory - faster within job wage growth and larger wage losses upon displacement - find empirical support in the data.