• No results found

Two Views of Inequality Over the Life Cycle*

N/A
N/A
Protected

Academic year: 2019

Share "Two Views of Inequality Over the Life Cycle*"

Copied!
35
0
0

Loading.... (view fulltext now)

Full text

(1)

The Effects of Technical Change on Labor Market

Inequalities

Andreas Hornstein (Richmond Fed)

Per Krusell (Princeton University)

Gianluca Violante (New York University)

(2)

What do we do in the Handbook chapter?

(3)

What do we do in the Handbook chapter?

1. We discuss three decades (1970-2000) of data on technology, productivity, and labor market outcomes

2. We explore the hypothesis that technological change has

determined the observed changes in the labor market (and that there may be a feedback)

Neoclassical theory: competitive labor market, firms as

production functions

Beyond neoclassical theory: frictional labor market,

(4)

What do we do in the Handbook chapter?

1. We discuss three decades (1970-2000) of data on technology, productivity, and labor market outcomes

2. We explore the hypothesis that technological change has

determined the observed changes in the labor market (and that there may be a feedback)

Neoclassical theory: competitive labor market, firms as

production functions

Beyond neoclassical theory: frictional labor market,

organization of firms, unemployment, institutions (e.g. unions)

(5)

Methodological Issues

Distinctive feature of this literature: huge variety of approaches

Neoclassical growth/Schumpeterian growth, McCall

search/Lucas-Prescott islands, Mortensen-Pissarides random matching/directed search, Bewley incomplete

(6)

Methodological Issues

Distinctive feature of this literature: huge variety of approaches

Neoclassical growth/Schumpeterian growth, McCall

search/Lucas-Prescott islands, Mortensen-Pissarides random matching/directed search, Bewley incomplete

markets/Arrow-Debreu with limited commitment

Why such heterogeneity of frameworks?

1. Young field of research

(7)

Methodological Issues

Distinctive feature of this literature: huge variety of approaches

Neoclassical growth/Schumpeterian growth, McCall

search/Lucas-Prescott islands, Mortensen-Pissarides random matching/directed search, Bewley incomplete

markets/Arrow-Debreu with limited commitment

Why such heterogeneity of frameworks?

1. Young field of research

2. Many possible departures from competitive model

Challenge for the exposition... we gave priority to presenting a

(8)

College-High School Wage Premium

1965 1970 1975 1980 1985 1990 1995 2000

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 Year N o rm a lize d ra tios (1 98 2 =1)

Dynamics of Relative Prices and Quantity of Skills in the U.S. (1963−2002)

Wage Premium COLG−HSG Relative Proportion COLG−HSG

Wage Premium: 1.47

(9)

Rise in the Educational Premium I

KATZ-MURPHY (1992)

From CES production function in skilled and unskilled labor:

log

wst

wut

= σlog

Ast

Aut

+ (1 − σ)log

lut

lst

(10)

Rise in the Educational Premium I

KATZ-MURPHY (1992)

From CES production function in skilled and unskilled labor:

log

wst

wut

= σlog

Ast

Aut

+ (1 − σ)log

lut

lst

σ = 0.3 elasticity of substitution around 1.4

relative supply of skills rose at 3% per year

(11)

Rise in the Educational Premium I

KATZ-MURPHY (1992)

From CES production function in skilled and unskilled labor:

log wst wut = σlog Ast Aut

+ (1 − σ)log

lut

lst

σ = 0.3 elasticity of substitution around 1.4

relative supply of skills rose at 3% per year

skill-biased technical change (SBTC) grew at 10% per year

Limits of the pure SBTC hypothesis:

it’s based on an unobservable residual

growth in relative productivity of skilled labor huge, plausible?

(12)

Rise in the Educational Premium II

GRILICHES (1969), HOLMES-MITCHELL (2004), JOVANOVIC (1998),

KRUSELL-OHANIAN-RIOS RULL-VIOLANTE (2000)

Capital-skill complementarity hypothesis:

Capital equipment and skilled labor are complements in

production

Rapid fall of relative price of equipment, due to fast

productivity improvements in ICT, increased the demand for capital in production

It successfully accounts for the rise in the skill premium,

essentially without the help of growth in the unobserved relative

(13)

Further Evidence on K-S Complementarity

FLUG-HERCOWITZ (2000), GOLDIN-KATZ (1998), LINDQUIST (2003, 2004), COEN

PIRANI-CASTRO (2004)

Large effect of equipment investments on relative wages in a

cross-section of countries

The theory works also when applied to the evolution of skill premia

in Sweden, where institutions play a big role in the labor market

It helps explaining cyclical behavior of the skill premium at

business-cycle frequencies

(14)

Historical Role of K-S Complementarity

1930 1940 1950 1960 1970 1980 1990 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 Year

Normalized ratios (1929=1)

Dynamics of Relative Prices of Capital and Returns to Education in the U.S. (1929−1995)

Relative Price of Capital Return to College Return to High−School

1930 1940 1950 1960 1970 1980 1990 0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 Year

Normalized ratios (1929=1)

Dynamics of Relative Prices of Capital and Returns to Education in the U.S. (1929−1995)

Relative Price of Capital Return to College Return to High−School

1929 = 0.10

(15)

Endogenous Skill-Bias

SAMUELSON (1965), ACEMOGLU (1998, 2002, 2003), KILEY (1999),

COZZI-IMPULLITTI (2004)

If R-D can be directed towards productivity improvements of

(16)

Endogenous Skill-Bias

SAMUELSON (1965), ACEMOGLU (1998, 2002, 2003), KILEY (1999),

COZZI-IMPULLITTI (2004)

If R-D can be directed towards productivity improvements of

different inputs, it will be biased towards the one with the highest return for the innovators

Sources of SBTC:

1. market size effect:

Exogenous rise in the supply of skilled labor in 1970s

Technology policy: U.S. government shifted expenditures

towards IT goods

2. relative price effect:

(17)

Rise in the Returns to Ability

CASELLI (1999), GALOR-MOAV (2000), GALOR-TSIDDON (1997),

GREENWOOD-YORUKOGLU (1997), KRUEGER-KUMAR (2004), LLOYD-ELLIS (1999)

Nelson-Phelps (1966) Hypothesis: workers endowed with more

innate skills cope better with technological transformations

Various versions: more able workers...

... are more productive with the new technology

... acquire skills specific to the new technology more cheaply

... are less subject to obsolescence of human capital due to

(18)

Returns to Experience by Educational Group

60 65 70 75 80 85 90 95

0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65

Male high school graduates

0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65

(19)

Rise in the Experience Premium

AGHION-HOWITT-VIOLANTE (2002), HECKMAN, LOCHNER AND TABER (1998),

WEINBERG (1999)

General Purpose Technology : transferability of knowledge

(20)

Rise in the Experience Premium

AGHION-HOWITT-VIOLANTE (2002), HECKMAN, LOCHNER AND TABER (1998),

WEINBERG (1999)

General Purpose Technology : transferability of knowledge

improves with GPT, which increases the value of experience and the returns to experience

Experience facilitates adoption for the low-educated: experience

(21)

Age-Profiles of PC Adoption

0 5 10 15 20 25 30 35 40 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4

Years of Experience

Fr acti on of W orke rs

Adoption Rate of Computers by High−School Graduates

1984 1987 1993 1997

0 5 10 15 20 25 30 35 40 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 F ract io n of Wor ke rs

Adoption Rate of Computers by College Graduates

(22)

Deunionization and the Rise in Inequality

0.18 0.20 0.22 0.24 0.26 0.28 0.30 0.32 2.0 2.5 3.0 3.5 4.0

66 68 70 72 74 76 78 80 82 84 86 88 90 92

unionization inequality u n io n d e n s it y 9 0 -1 0 w a g e d if fe re n ti a l

(23)

Deunionization

ACEMOGLU-AGHION-VIOLANTE (2002), ORTIGUEIRA (2004)

Traditional view: deunionization is an alternative explanation

Alternative view: deunionization is caused by technology

Model the union as a coalition of workers heterogeneous in

their skill level, with endogenous participation decision:

Benefit: rent extraction

(24)

Deunionization

ACEMOGLU-AGHION-VIOLANTE (2002), ORTIGUEIRA (2004)

Traditional view: deunionization is an alternative explanation

Alternative view: deunionization is caused by technology

Model the union as a coalition of workers heterogeneous in

their skill level, with endogenous participation decision:

Benefit: rent extraction

Costs: wage compression for skilled workers, operating cost

SBTC increases the relative productivity of skilled workers and the

value of opting out of the union to work at the competitive wage

(25)

Rise in the Returns to “Luck”

ACEMOGLU (2002), MANUELLI (2000), SHI (2002), VIOLANTE (2002), WONG (2003)

Models with frictional labor markets, random matching, vintage

(26)

Rise in the Returns to “Luck”

ACEMOGLU (2002), MANUELLI (2000), SHI (2002), VIOLANTE (2002), WONG (2003)

Models with frictional labor markets, random matching, vintage

capital, and Nash bargaining

An acceleration in the rate of capital-embodied technical change

has two effects:

1. can increase the dispersion of productivities of technologies in operation ⇒ higher wage inequality, since wages depend on

(27)

Rise in the Returns to “Luck”

ACEMOGLU (2002), MANUELLI (2000), SHI (2002), VIOLANTE (2002), WONG (2003)

Models with frictional labor markets, random matching, vintage

capital, and Nash bargaining

An acceleration in the rate of capital-embodied technical change

has two effects:

1. can increase the dispersion of productivities of technologies in operation ⇒ higher wage inequality, since wages depend on

productivity of machines

2. with vintage human capital, it can increase the dispersion of skills ⇒ higher wage inequality, since wages depend on

(28)

Europe vs US: Unemployment and Labor Share

1960 1965 1970 1975 1980 1985 1990 19952 3 4 5 6 7 8 9 10 11 Year Percentage

"Standardized" Unemployment Rate

United States Europe (Average)

(29)

Europe vs United States

ACEMOGLU (2003), BERTOLA-ICHINO (1995), CABALLERO-HAMMOUR (1998),

HORNSTEIN-KRUSELL-VIOLANTE (2003), LJUNGQVIST-SARGENT (1998),

MARIMON-ZILIBOTTI (1999), MORTENSEN-PISSARIDES (1998), ROGERSON (2004)

Krugman’s (1994) hypothesis: similar macroeconomic shocks,

(30)

Europe vs United States

ACEMOGLU (2003), BERTOLA-ICHINO (1995), CABALLERO-HAMMOUR (1998),

HORNSTEIN-KRUSELL-VIOLANTE (2003), LJUNGQVIST-SARGENT (1998),

MARIMON-ZILIBOTTI (1999), MORTENSEN-PISSARIDES (1998), ROGERSON (2004)

Krugman’s (1994) hypothesis: similar macroeconomic shocks,

interacted with different institutions lead to different outcomes

Labor supply view: technology shock skill obsolescence

reduces earning power ⇒ jobless workers prefer collecting UI

(31)

Europe vs United States

ACEMOGLU (2003), BERTOLA-ICHINO (1995), CABALLERO-HAMMOUR (1998),

HORNSTEIN-KRUSELL-VIOLANTE (2003), LJUNGQVIST-SARGENT (1998),

MARIMON-ZILIBOTTI (1999), MORTENSEN-PISSARIDES (1998), ROGERSON (2004)

Krugman’s (1994) hypothesis: similar macroeconomic shocks,

interacted with different institutions lead to different outcomes

Labor supply view: technology shock skill obsolescence

reduces earning power ⇒ jobless workers prefer collecting UI

to working at the low wage ⇒ u rises

Labor demand view: K-embodied technology shock labor

becomes too expensive relative to capital due to wage rigidity

(32)

Europe vs United States

ACEMOGLU (2003), BERTOLA-ICHINO (1995), CABALLERO-HAMMOUR (1998),

HORNSTEIN-KRUSELL-VIOLANTE (2003), LJUNGQVIST-SARGENT (1998),

MARIMON-ZILIBOTTI (1999), MORTENSEN-PISSARIDES (1998), ROGERSON (2004)

Krugman’s (1994) hypothesis: similar macroeconomic shocks,

interacted with different institutions lead to different outcomes

Labor supply view: technology shock skill obsolescence

reduces earning power ⇒ jobless workers prefer collecting UI

to working at the low wage ⇒ u rises

Labor demand view: K-embodied technology shock labor

becomes too expensive relative to capital due to wage rigidity

⇒ capital substitutes labor in production

Sectoral-transformation view: if one focuses on e (rather

than on u), the US-EU trends start diverging in the 1960s ⇒

(33)

Policy Implications

HECKMAN-CARNEIRO (2004), KRUEGER (2004)

To the extent that the impact of technological change on inequality

(34)

Policy Implications

HECKMAN-CARNEIRO (2004), KRUEGER (2004)

To the extent that the impact of technological change on inequality

is “socially inefficient”, we can speculate on the best policy

Technology-skill complementarity

(35)

Policy Implications

HECKMAN-CARNEIRO (2004), KRUEGER (2004)

To the extent that the impact of technological change on inequality

is “socially inefficient”, we can speculate on the best policy

Technology-skill complementarity

important to rebuild (obsolete) skills through training policies

Technology-ability complementarity

interventions should occur early in the life-cycle

adult training is ineffective, better subsidizing wages for the

References

Related documents

To address sustainability on a global context and its requirement in developing countries, the Sustainable Engineering and International Development (SEID) course was developed

Non-Pr ofit Checking Pr eferr ed Inter est Checking IO LTA Checking Business Money Market $100 N/A $5,000 average daily $5 N/A $10 if inter est ear ned is > = $10 $10 Yes, with fr

Similarly, Kapan (2009) reports a decrease in the women’s labor supply in England and Wales following a 2000 House of Lords decision that entitled women to a larger share of

But even as the internet makes place less relevant, it increases the means for shared experiences of place. The pages you see here represent fan-sponsored music club in different


 Organizational
Structure
Concept


This is the first study to our knowledge that explores the development of the ability to recognize emotion from naturalistic body cues presented as full-light and point-light

Second, achieved collaboration is positively affected by both the overall model, including all cooperative procurement procedures, and by the individual procedures of soft

9 "In the affected markets, high bandwidth users (e.g. usage over 100Gb or 250Gb of data per month) are advised to either limit usage or convert to a high user