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Skill Biased Technological Change and Endogenous Benefits: The Dynamics of Unemployment and Wage Inequality

[Zeitschriftenartikel]

Weiss, Matthias; Garloff, Alfred

Zitationshinweis

Bitte beziehen Sie sich beim Zitieren dieses Dokumentes immer auf folgenden Persistent Identifier (PID):http://nbn-resolving.de/urn:nbn:de:0168-ssoar-242195

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Abstract In this paper, we study the effect of skill-biased technological change on unemployment and wage inequality in the presence of a link between social benefits and average income. In this case, an increase in the productivity of skilled workers and hence their wage leads to an increase in average income and hence in benefits. The increased fallback income, in turn, makes unskilled workers ask for higher wages. As higher wages are not justified by respective productivity increases, unemployment rises. More generally, we show that skill-biased technological change leads to increasing unemployment of the unskilled and to a moderately increasing wage inequality when benefits are endogenous. The model provides a theoretical explanation for diverging dynamics in wage inequality and unemployment under different social benefits regimes: Analyzing the social legislation in 14 countries, we find that benefits are linked to the evolution of average income in Continental Europe but not in the U.S. and the UK. Given this institutional difference, our model predicts that skill-biased technological change leads to rising unemployment in Continental Europe and rising wage inequality in the U.S. and the UK.
Klassifikation Volkswirtschaftstheorie
Sprache Dokument Englisch
Publikationsjahr 2009
Seitenangabe S. 811-821
Zeitschriftentitel Applied Economics, 43 (2009) 7
DOI http://dx.doi.org/10.1080/00036840802599933
ISSN 1466-4283
Status Postprint; begutachtet (peer reviewed)
Lizenz PEER Licence Agreement (applicable only to documents from PEER project)
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