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Technological progress and inequality: an ambiguous relationship

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Abstract

Faster technological change does not necessarily widen wage inequality. This occurs only if technical progress takes the form of product improvements. Conversely, cost-reducing innovation favors a reduction in inequality. This novel result is obtained in a theoretical framework in which individuals can choose both the quality of the equipment and the retooling time. The main implication of this work is that the rapid decline of the durable goods’ price documented in the postwar period, and especially since the 1970s, should have favored a reduction in income inequality. The popular view that attributes the rise in inequality to the spread of information technologies is questioned by this analysis.

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Notes

  1. See Katz and Murphy (1992), Bound and Johnson (1992), Lawrence and Slaughter (1993), Berman et al. (1998), Autor et al. (1998), and Machin and Van Reenen (1998).

  2. See, for instance, Card and DiNardo (2002) and Eckstein and Nagypál (2004).

  3. See, among others, Galor and Tsiddon (1997), Greenwood and Yorukoglu (1997), Caselli (1999), and Rubinstein and Tsiddon (2004).

  4. See Acemoglu (2002) for a recent comprehensive review.

  5. See the pioneering contributions of Segerstrom et al. (2004), and Aghion and Howitt (1992).

  6. In a note the author explains that the original paper on which the chapter is based was published in Italian in 1978.

  7. Product innovation takes only the form of quality improvements, because the analysis is conducted assuming only one type of durable good the quality of which improves over time.

  8. Indeed, Goldin and Katz (1998) argue that the diffusion of innovations of the early decades of the 20th century, such as the batch and continuous-process practice, increased the demand for skilled workers as well.

  9. One of the earlier works in this literature is Zeckhauser (1968), which describes the problem of a craftsman who has to decide when to retool. More recently, Parente (1994) developed a general equilibrium model of endogenous growth in which agents choose jointly the frequency of replacement and the quality of the technology. In Cooley et al. (1997) and Jovanovic and Rob (1997), the decision to replace old technologies is also modeled explicitly, although in neither work is the choice of the quality of equipment fully explored.

  10. The case of a corner solution is discussed in Appendix B.

  11. This feature does not hold for a corner solution.

  12. One can obtain these relationships analytically by differentiating Eq. 14 with respect to δ and γ.

  13. This outcome applies only to the interior solution (S > 0). See Appendix B for a discussion of the corner solution.

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Authors and Affiliations

  1. School of Economics, Georgia Institute of Technology, 781 Marietta St, Atlanta, GA, 30332, USA

    Maurizio Iacopetta

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  1. Maurizio Iacopetta
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Correspondence to Maurizio Iacopetta.

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I thank three anonymous referees, Will Baumol, Vivek Ghosal, Boyan Jovanovic, Derek Kellenberg, Thijs ten Raa, Minjae Song, and Gianluca Violante for helpful comments, suggestions, and discussions. All remaining errors are mine. An appendix that goes along with this work is available upon request or can be found at http://www.prism.gatech.edu/~mi26/Codes_In.htm where you can also find the Matlab codes used to generate the paper’s figures.

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Iacopetta, M. Technological progress and inequality: an ambiguous relationship. J Evol Econ 18, 455–475 (2008). https://doi.org/10.1007/s00191-008-0100-1

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