Working Paper: CEPR ID: DP2290
Authors: Gilles Saint-Paul
Abstract: We study the earnings structure and the equilibrium assignment of workers when they exert intra-firm spillovers on each other. We allow for arbitrary spillovers provided output depends on some aggregate index of workers' skill. Despite the possibility of increasing returns to skills, equilibrium typically exists. We show that equilibrium will typically be segregated; that the skill space can be partitioned into a set of segments and any firm hires from only one segment. Next, we apply the model to analyze the effect of information technology on segmentation and the distribution of income. There are two types of human capital, productivity and creativity, i.e. the ability to produce ideas that may be duplicated over a network. Under plausible assumptions, inequality rises and then falls when network size increases, and the poorest workers cannot lose. We also analyze the impact of an improvement in worker quality and of an increased international mobility of ideas.
Keywords: income distribution; worker assignment; spillovers; increasing returns; segregation; stratification; networks; information technology
JEL Codes: J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of information technology (L86) | changes in the structure of earnings and worker assignment (J31) |
| increase in network size (D85) | increase in income inequality (D31) |
| increase in network size (D85) | decrease in income inequality (D31) |
| interaction between productivity and creativity among workers (O49) | changes in income distribution (D31) |
| improvements in information technology (L86) | protective effect for lower-skilled workers (J68) |
| equilibrium will typically be segregated (D50) | firms hire workers from specific skill segments (J42) |