Working Paper: CEPR ID: DP1413
Authors: Oded Galor; Daniel Tsiddon
Abstract: This paper analyses the relationship between technological progress, intergenerational earnings mobility, and economic growth. The analysis demonstrates that the interplay between technological progress and two components that determine individual earnings ? parental human capital and individual ability ? governs mobility, technological progress, and economic growth. In periods of major technological inventions the ability effect is the dominating factor. The decline in the relative importance of initial parental conditions (i.e. the driving force behind the persistence of inequality) enhances mobility and generates a larger concentration of high-ability individuals in technologically-advanced sectors, stimulating further technological progress and economic growth. Once existing technologies become more accessible, however, mobility is diminished and inequality becomes more persistent. The reduction in the concentration of human capital in technologically-advanced sectors diminishes the likelihood of major technological breakthroughs and slows down future economic growth. User friendliness, therefore, becomes unfriendly to future economic growth.
Keywords: earnings mobility; income distribution; inequality; human capital; growth; overlapping generations
JEL Codes: D31; J62; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological progress (O49) | Intergenerational earnings mobility (J62) |
| Intergenerational earnings mobility (J62) | Economic growth (O00) |
| Ability effect (during major technological inventions) (O33) | Intergenerational earnings mobility (J62) |
| Parental human capital effect (during accessibility of existing technologies) (J24) | Intergenerational earnings mobility (J62) |
| Intergenerational earnings mobility (J62) | Concentration of high-ability individuals in advanced sectors (D29) |
| Concentration of high-ability individuals in advanced sectors (D29) | Technological progress (O49) |
| Reduction in concentration of high-ability individuals in advanced sectors (D29) | Technological breakthroughs (O33) |
| Technological breakthroughs (O33) | Economic growth (O49) |