IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/6416.html
   My bibliography  Save this paper

Vintage Capital and Inequality

Author

Listed:
  • Boyan Jovanovic

Abstract

If machines are indivisible, a vintage capital model must give rise to income inequality. If new machines are always better than old ones and if society cannot provide everyone with a new machine all of the time, inequality will result. I explore this mechanism in detail. If technology resides in machines and if a firm or worker must use just one technology at a time, a variety of machines will be in use, and workers' productivities will differ. This is because not everyone can be given the latest vintage machine all of the time. Inequality thus originates in the limited capacity of the capital goods sector. If machine quality and skill are complements, a worker who is paired with the best machine will acquire more skill, and inequality persists indefinitely. Moreover, if the used equipment market or the process of labor turnover function without frictions, a perfect positive assignment between the quality of labor and of capital can be maintained by a process of continual reassignment. This serves to enhance the degree of equilibrium inequality. Paradoxically, in this type of model, free migration of labor across borders raises cross-country inequality instead of lowering it as it does in some other models.

Suggested Citation

  • Boyan Jovanovic, 1998. "Vintage Capital and Inequality," NBER Working Papers 6416, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6416
    Note: PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w6416.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "1974," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 49-95, June.
      • Greenwood, J. & Yorukoglu, M., 1996. "1974," RCER Working Papers 429, University of Rochester - Center for Economic Research (RCER).
    2. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, vol. 64(6), pages 1299-1310, November.
    3. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    4. Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December.
    5. Mark Doms & Timothy Dunne & Kenneth R. Troske, 1997. "Workers, Wages, and Technology," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 253-290.
    6. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(1), pages 35-52.
    7. Benhabib, Jess & Rustichini, Aldo, 1991. "Vintage capital, investment, and growth," Journal of Economic Theory, Elsevier, vol. 55(2), pages 323-339, December.
    8. Jovanovic, Boyan, 1982. "Inflation and Welfare in the Steady State," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 561-577, June.
    9. Michael Gort & Raford Boddy, 1967. "Vintage Effects and the Time Path of Investment in Production Relations," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 395-430, National Bureau of Economic Research, Inc.
    10. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, vol. 87(3), pages 342-362, June.
    11. Michael Perelman, 1989. "Keynes, Investment Theory and the Economic Slowdown," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-19940-2, December.
    12. K. J. Arrow, 1971. "The Economic Implications of Learning by Doing," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 11, pages 131-149, Palgrave Macmillan.
    13. Jaume Ventura & Francesco Caselli, 2000. "A Representative Consumer Theory of Distribution," American Economic Review, American Economic Association, vol. 90(4), pages 909-926, September.
    14. Sattinger, Michael, 1975. "Comparative Advantage and the Distributions of Earnings and Abilities," Econometrica, Econometric Society, vol. 43(3), pages 455-468, May.
    15. Donald Siegel, 1998. "The Impact Of Technological Change On Employment: Evidence From A Firm-Level Survey Of Long Island Manufacturers," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 5(2-4), pages 227-246.
    16. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(3), pages 779-804.
    17. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    18. Parente Stephen L., 1994. "Technology Adoption, Learning-by-Doing, and Economic Growth," Journal of Economic Theory, Elsevier, vol. 63(2), pages 346-369, August.
    19. Michael Perelman, 1989. "Replacement Investment Theory," Palgrave Macmillan Books, in: Keynes, Investment Theory and the Economic Slowdown, chapter 3, pages 103-155, Palgrave Macmillan.
    20. Acemoglu, Daron & Zilibotti, Fabrizio, 1997. "Was Prometheus Unbound by Chance? Risk, Diversification, and Growth," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 709-751, August.
    21. Avinash Dixit, 1991. "Analytical Approximations in Models of Hysteresis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 141-151.
    22. Richard Zeckhauser, 1968. "Optimality in a World of Progress and Learning," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(3), pages 363-365.
    23. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 501-526.
    24. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-583, August.
    25. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
    26. Bartel, Ann P & Lichtenberg, Frank R, 1987. "The Comparative Advantage of Educated Workers in Implementing New Technology," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 1-11, February.
    27. Michele Boldrin & Jose A. Scheinkman, 1988. "Learning-By-Doing, International Trade and Growth: A Note," UCLA Economics Working Papers 462, UCLA Department of Economics.
    28. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-1165, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:cvs:starer:9816 is not listed on IDEAS
    2. Jeremy Greenwood & Boyan Jovanovic, 2001. "Accounting for Growth," NBER Chapters, in: New Developments in Productivity Analysis, pages 179-224, National Bureau of Economic Research, Inc.
    3. Raouf Boucekkine & David De la Croix & Omar Licandro, 2011. "Vintage Capital Growth Theory: Three Breakthroughs," Working Papers 565, Barcelona School of Economics.
    4. Mateos-Planas, Xavier, 2000. "Schooling and distortions in a vintage capital model," Discussion Paper Series In Economics And Econometrics 0030, Economics Division, School of Social Sciences, University of Southampton.
    5. Mateos-Planas, Xavier, 2000. "Schooling and distortions in a vintage capital model," Discussion Paper Series In Economics And Econometrics 30, Economics Division, School of Social Sciences, University of Southampton.
    6. Weinberg, Bruce A., 2004. "Experience and Technology Adoption," IZA Discussion Papers 1051, Institute of Labor Economics (IZA).
    7. Xavier Mateos-Planas, 2001. "Schooling and Distortions in a Vintage Capital Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(1), pages 127-158, January.
    8. Huggett, Mark & Ospina, Sandra, 2001. "Does productivity growth fall after the adoption of new technology?," Journal of Monetary Economics, Elsevier, vol. 48(1), pages 173-195, August.
    9. Adriaan Zon & Roberto Antonietti, 2016. "Education and training in a model of endogenous growth with creative wear-and-tear," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 33(1), pages 35-62, April.
    10. Cooley, Thomas F. & Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "The replacement problem," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 457-499, December.
    11. Toshihiko Mukoyama, 2003. "A Theory of Technology Diffusion," Macroeconomics 0303010, University Library of Munich, Germany, revised 03 Jun 2003.
    12. Lloyd-Ellis, Huw & Roberts, Joanne, 2002. "Twin Engines of Growth: Skills and Technology as Equal Partners in Balanced Growth," Journal of Economic Growth, Springer, vol. 7(2), pages 87-115, June.
    13. Carranza, Luis & Galdon-Sanchez, Jose E., 2004. "Financial intermediation, variability and the development process," Journal of Development Economics, Elsevier, vol. 73(1), pages 27-54, February.
    14. Galor, Oded & Tsiddon, Daniel, 1997. "The Distribution of Human Capital and Economic Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 93-124, March.
    15. Ozan Hatipoglu, 2007. "Inequality and Growth. Where Are We Headed? A Survey," Working Papers 2007/07, Bogazici University, Department of Economics.
    16. Kredler, Matthias, 2014. "Vintage human capital and learning curves," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 154-178.
    17. Maurizio Iacopetta, 2009. "Technological progress and inequality: an ambiguous relationship," Springer Books, in: Uwe Cantner & Jean-Luc Gaffard & Lionel Nesta (ed.), Schumpeterian Perspectives on Innovation, Competition and Growth, pages 181-201, Springer.
    18. Stephen L. Parente, 2000. "Learning-by-Using and the Switch to Better Machines," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 675-703, October.
    19. Martine Carre & David Drouot, 2004. "Pace versus Type: The Effect of Economic Growth on Unemployment and Wage Patterns," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 737-757, July.
    20. Peter Thompson, 2003. "Technological Change and the Age-Earnings Profile: Evidence from the International Merchant Marine, 1861-1912," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 578-601, July.
    21. Mateos-Planas, Xavier, 2000. "Technology adoption with finite horizons," Discussion Paper Series In Economics And Econometrics 0033, Economics Division, School of Social Sciences, University of Southampton.

    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6416. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.