Technology and Wage Inequality

Galor Oded and Omer Moav, "Ability Biased Technological Transition, Wage Inequality, and Economic Growth," Quarterly Journal of Economics, 115, 469-498 (May 2000)

Galor Oded and Daniel Tsiddon, "Technology, Mobility, and Growth," American Economic Review, 87, 363-382 (June 1997)

Nachum Sicherman and Oded Galor, "A Theory of Career Mobility," Journal of Political Economy, 98, 169-192, (February 1990)

This research challenges the existing viewpoint that skilled-biased technological change is the prime cause of the widening inequality in recent decades. It argues the pace of technological change rather than the bias of this change has generated the exiting patterns of wage inequality.

This research argues that ability-biased technological transition accounts for the evolution of technology, education attainment, and wage inequality as observed in the United States and other advanced countries over the past several decades. An increase in the rate of technological progress raises the return to ability and simultaneously generates: a rise in the wage inequality between and within groups of skilled and unskilled workers, an increase in the average wage of skilled workers, a decline in the average wage of unskilled workers, an increase in education attainment, and productivity slowdown.

The research explores the relationship between technological progress, earnings inequality, the transmission of inequality across generations, and economic growth. The analysis demonstrates that the interplay between technological progress and two components that determine individual earnings - specific human capital and individual ability - governs the evolutionary patterns of wage inequality, intergenerational earnings mobility, the pace of technological progress, and economic growth. In periods of major technological inventions the ability effect is the dominating factor and earnings inequality rises. The decline in the relative importance of specific human capital enhances mobility and generates a larger concentration of individuals with high levels of ability and human capital in technologically advanced sectors, stimulating further technological progress and future economic growth. In periods of technological innovations, however, once existing technologies become more accessible, the parental specific human capital effect is the dominating factor, mobility is diminished and inequality declines but becomes more persistent.