Abstract
This paper offers an explanation for the evolution of wage inequality within and between industries and education groups over the past several decades. The model is based on the disproportionate depreciation of technology-specific skills versus general skills due to technological progress, which occurs randomly across sectors. Consitent with empirical evidence, the model predicts that increasing randomness is the primary source of inequality growth within uneducated workers, whereas inequality growth within educated workers determined more by changes in the composition and return to ability. Increasing randomness generates a "precautionary" demand for education, which we show empirically to be significant.
| Original language | English |
|---|---|
| Pages (from-to) | 285-315 |
| Number of pages | 31 |
| Journal | Journal of Economic Growth |
| Volume | 6 |
| Issue number | 4 |
| DOIs | |
| State | Published - Dec 2001 |
Bibliographical note
Funding Information:For helpful comments, we wish to thank Daron Acemoglu, Lex Borghans, Paul Evans, Nicole Fortin, Oded Galor, Peter Howitt, Larry Katz, Joram Mays har, Yis hay Maoz, Avi Simhon, Shlomo Yitzhaki, David Weil, Bas ter Weel, Finis Welch, Jos eph Zeira, Itzhak Zilcha, anonymous referees, and seminar participants at the University of Maryland, Hebrew University, Haifa University, ``Technology, Human Capital, and Economic Growth'' Jerusalem (June 1999), and the American Economic Association Meetings (2001). For financial support, we are grateful to the Maurice Falk Institute and the Melchior Minerva Center for Macroeconomics and Growth.
Keywords
- Inequality
- Risk
- Technological progress
