Vintage Capital as an Origin of Inequalities

Giovanni Violante and Andreas Hornstein
Authors registered in the RePEc Author Service: Per Krusell

No 3596, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Does capital-embodied technological change play an important role in shaping labour market inequalities? This Paper addresses the question in a model with vintage capital and search/matching frictions where costly capital investment leads to large heterogeneity in productivity among vacancies in equilibrium. The Paper first demonstrates analytically how both technology growth and institutional variables affect equilibrium wage inequality, income shares and unemployment. Next, it applies the model to a quantitative evaluation of capital as an origin of wage inequality: at the current rate of embodied productivity growth a 10-year vintage differential in capital translates into a 6% wage gap. The model also allows a US ? Continental Europe comparison: an embodied technological acceleration interacted with different labour market institutions can explain a significant part of the differential rise in unemployment and capital share and some of the differential dynamics in wage inequality.

Keywords: Vintage capital; Wage inequality; Unemployment; Labour share; Vacancy heterogeneity (search for similar items in EconPapers)
JEL-codes: J31 J64 (search for similar items in EconPapers)
Date: 2002-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Vintage capital as an origin of inequalities (2002)
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