NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Wage Dispersion and Technical Progress

Pierre-Richard Agenor, Joshua Aizenman

NBER Working Paper No. 5417
Issued in January 1996
NBER Program(s):   ITI

Since the early 1980s, wage dispersion and the ratio of skilled to unskilled employment have increased significantly in several industrial countries. A number of economists have attributed these trends to skill-biased technical progress. This paper studies the wage and employment effects of technological changes of this type. The analysis is based on a model with a heterogeneous work force and a segmented labor market. Skill-biased technical progress is modeled as a shock that switches demand from unskilled to skilled labor in the primary, high-wage sector, while leaving the total demand for labor in that sector constant at initial wages. Such a shock reduces total employment in the primary sector, as the equilibrium increase in skilled labor employment is smaller than the fall in employment of unskilled labor. Efficiency factors are shown to magnify the adverse employment effects of pro-skilled technical change.

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Document Object Identifier (DOI): 10.3386/w5417

Published: Published as "Technology change, relative wages and unemployment," in the European Economic Review, Vol. 41, no. 2 (April 1997): 187-206.

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