Wage Inequality and Lobbying: a directed technical change approach

Tiago Sequeira and Oscar Afonso

No 2020-05, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: We devise a generalized Directed Technical Change growth model in which firms spend resources in lobbying activity. As expected, the presence of lobbying distorts the skill premium and economic growth. Lobbying also contributes to a lower technological-knowledge bias toward the skill-sector and constitutes a possible explanation for the diverging empirical evidence on the relationship between the skill premium and the relative supply of skills. An increase in the relative lobbying power of the skilled intensive intermediate goods firms can lead to an increase or decrease in the skill premium, depending on the elasticity of substitution between the skilled and unskilled sectors. Lobbying also introduces possibility of a dual economy, with two different steady states, one characterized by low growth and another by high growth, depending on a threshold level of the lobbying power and on the elasticity of substitution. Quantitative exercises show that lobbying can indeed be quite important in distorting the skill premium and the economic growth.

Keywords: Directed technical change; lobbying power; ineficiency; economic growth; wage inequality; quantitative implications. (search for similar items in EconPapers)
JEL-codes: J31 O30 O41 P16 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2020-04
New Economics Papers: this item is included in nep-gro, nep-knm and nep-lma
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