Working Paper: CEPR ID: DP3596
Authors: Andreas Hornstein; Per Krusell; Giovanni L. Violante
Abstract: Does capital-embodied technological change play an important role in shaping labour market inequalities? This Paper addresses the question in a model with vintage capital and search/matching frictions where costly capital investment leads to large heterogeneity in productivity among vacancies in equilibrium. The Paper first demonstrates analytically how both technology growth and institutional variables affect equilibrium wage inequality, income shares and unemployment. Next, it applies the model to a quantitative evaluation of capital as an origin of wage inequality: at the current rate of embodied productivity growth a 10-year vintage differential in capital translates into a 6% wage gap. The model also allows a US ? Continental Europe comparison: an embodied technological acceleration interacted with different labour market institutions can explain a significant part of the differential rise in unemployment and capital share and some of the differential dynamics in wage inequality.
Keywords: labour share; unemployment; vacancy heterogeneity; vintage capital; wage inequality
JEL Codes: J31; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capital-embodied technological change (O49) | wage inequality (J31) |
| 10-year vintage differential in capital (D25) | wage gap (J31) |
| technological improvements in capital (O49) | disparities in productivity (O49) |
| disparities in productivity (O49) | wages (J31) |
| capital-embodied productivity growth (O47) | unemployment in U.S.-type economy (J64) |
| capital-embodied productivity growth (O47) | unemployment in European-type economy (J64) |
| unemployment benefits (J65) | unemployment durations (J64) |
| unemployment durations (J64) | labor share of output (D33) |
| labor share of output (D33) | wage inequality (J31) |