Technical Change, Inequality, and The Labor Market

Technical Change, Inequality, and The Labor Market

July 2000 | Daron Acemoglu
This essay discusses the effect of technical change on wage inequality. It argues that technical change has been skill-biased over the past sixty years, with an acceleration in skill bias contributing to recent increases in inequality. In contrast, nineteenth-century technical change was skill-replacing, as the increased supply of unskilled workers made new technologies profitable. The twentieth century saw skill-biased technical change due to the rapid growth of skilled workers, leading to skill-complementary technologies. Recent skill bias acceleration is likely due to increased skill supply. The essay also argues that technological changes have affected labor market organization and wage structures. It presents a theoretical framework linking wage inequality and skill returns to supply and demand forces. Empirical trends show a rise in skilled worker supply and returns to education, along with increased wage inequality. The skill premium fell in the 1970s but rose sharply in the 1980s. The essay concludes that skill-biased technical change has characterized the past sixty years, with skill premium falling due to increased skill supply. It also highlights the importance of technological development and education access in shaping wage inequality.This essay discusses the effect of technical change on wage inequality. It argues that technical change has been skill-biased over the past sixty years, with an acceleration in skill bias contributing to recent increases in inequality. In contrast, nineteenth-century technical change was skill-replacing, as the increased supply of unskilled workers made new technologies profitable. The twentieth century saw skill-biased technical change due to the rapid growth of skilled workers, leading to skill-complementary technologies. Recent skill bias acceleration is likely due to increased skill supply. The essay also argues that technological changes have affected labor market organization and wage structures. It presents a theoretical framework linking wage inequality and skill returns to supply and demand forces. Empirical trends show a rise in skilled worker supply and returns to education, along with increased wage inequality. The skill premium fell in the 1970s but rose sharply in the 1980s. The essay concludes that skill-biased technical change has characterized the past sixty years, with skill premium falling due to increased skill supply. It also highlights the importance of technological development and education access in shaping wage inequality.
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