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Investment-Specific Technological Change, Skill Accumulation, and Wage Inequality

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Author Info
Hui He (University of Hawaii)
Zheng Liu (Emory University)

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Abstract

Wage inequality between education groups in the United States has increased substantially since the early 1980s. The relative number of college-educated workers has also increased dramatically in the postwar period. This paper presents a unified framework where the dynamics of both skill accumulation and wage inequality arise as an equilibrium outcome driven by measured investment-specific technological change. Working through equipment-skill complementarity and endogenous skill accumulation, the model does well in capturing the steady growth in the relative quantity of skilled labor during the postwar period and the substantial rise in wage inequality after the early 1980s. Based on the calibrated model, we examine the quantitative effects of some hypothetical tax-policy reforms on skill accumulation, wage inequality, and welfare. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2007.08.003
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 11 (2008)
Issue (Month): 2 (April)
Pages: 314-334
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Handle: RePEc:red:issued:06-160

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Related research
Keywords: Skill premium; Skill accumulation; Investment-specific technological change; Capital-skill complementarity;

Other versions of this item:

Find related papers by JEL classification:
E25 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
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, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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    Other versions:
  2. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November. [Downloadable!] (restricted)
  3. Andreas Hornstein & Per Krusell, 2003. "Implications of the capital-embodiment revolution for directed R&D and wage inequality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 25-50. [Downloadable!]
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    Other versions:
  6. Haley, William J, 1976. "Estimation of the Earnings Profile from Optimal Human Capital Accumulation," Econometrica, Econometric Society, vol. 44(6), pages 1223-38, November. [Downloadable!] (restricted)
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    Other versions:
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    Other versions:
  11. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November. [Downloadable!] (restricted)
    Other versions:
  12. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1995. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  13. Juan C. Conesa & Dirk Krueger, 1999. "Social Security Reform with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(4), pages 757-795, October. [Downloadable!] (restricted)
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    Other versions:
  15. Chris Papageorgiou & John Duffy & Fidel Perez-Sebastian, . "Capital-Skill complementarity? Evidence from a Panel of Countries," Departmental Working Papers 2003-12, Department of Economics, Louisiana State University. [Downloadable!]
    Other versions:
  16. Blankenau, William F. & Ingram, Beth F., 2002. "Welfare Implications Of Factor Taxation With Rising Wage Inequality," Macroeconomic Dynamics, Cambridge University Press, vol. 6(03), pages 408-428, June. [Downloadable!]
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    Other versions:
  21. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05. [Downloadable!] (restricted)
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    Other versions:
  24. James J. Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents," NBER Working Papers 6384, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Zheng Liu & Daniel F. Waggoner & Tao Zha, 2008. "Learning, Adaptive Expectations,and Technology Shocks," Emory Economics 0803, Department of Economics, Emory University (Atlanta). [Downloadable!]
    Other versions:
  2. Óscar Afonso & Maria Thompson, 2009. "Costly Investment, Complementarities and the Skill Premium," FEP Working Papers 323, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
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