TY  - JOUR
AU  - Jovanovic,Boyan
TI  - Vintage Capital and Inequality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6416
PY  - 1998
Y2  - February 1998
UR  - http://www.nber.org/papers/w6416
L1  - http://www.nber.org/papers/w6416.pdf
N1  - Author contact info:
Boyan Jovanovic
New York University
Department of Economics
19 W. 4th Street, 6th Floor
New York, NY  10012
Tel: 212/998-8953
Fax: 212/995-4186
E-Mail: Boyan.Jovanovic@nyu.edu
AB  - If machines are indivisible, a vintage capital model must give rise to income inequality.  If new machines are always better than old ones and if society cannot provide everyone with a new machine all of the time, inequality will result. I explore this mechanism in detail.  If technology resides in machines and if a firm or worker must use just one technology at a time, a variety of machines will be in use, and workers' productivities will differ.  This is because not everyone can be given the latest vintage machine all of the time.  Inequality thus originates in the limited capacity of the capital goods sector.  If machine quality and skill are complements, a worker who is paired with the best machine will acquire more skill, and inequality persists indefinitely.  Moreover, if the used equipment market or the process of labor turnover function without frictions, a perfect positive assignment between the quality of labor and of capital can be maintained by a process of continual reassignment.  This serves to enhance the degree of equilibrium inequality. Paradoxically, in this type of model, free migration of labor across borders raises cross-country inequality instead of lowering it as it does in some other models.
ER  -