Learning New Technology: The Polarization of the Wage Distribution

Manuel Hidalgo and Benedetto Molinari

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper revisits the relationship between wage inequality and technological progress. By applying counterfactual quantile regressions to historic U.S. data, we show that the reduction of wage inequality among low-wage workers generated by routinization-biased technical change was fully driven by a reduction of within-group inequality, which was determined by more homogeneous remunerations paid to routine workers. Changes in wage differentials between workers performing technology-neutral and technology-substitute tasks played instead a negligible role, which casts some doubt on a theory of technical change operating through a labor-demand channel. To reconcile the theory with data, we develop a model in which skill-heterogeneous workers face endogenous occupational choices and learning costs in connection with operating a new technology. In this model, when wage differentials are fixed technical change still generates an empirically-consistent non-monotone effect on wage inequality by affecting the average levels of skills within different groups of workers.

Date: 2015-11
New Economics Papers: this item is included in nep-ltv
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Working Paper: Learning New Technology: the Polarization of the Wage Distribution (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:15-42

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