Working Paper: NBER ID: w10371
Authors: Roland Bénabou
Abstract: The distribution of human capital and income lies at the center of a nexus of forces that shape a country's economic, institutional and technological structure. I develop here a unified model to analyze these interactions and their growth consequences. Five main issues are addressed. First, I identify the key factors that make both European-style "welfare state" and US-style "laissez-faire" social contracts sustainable.; I also compare the growth rates of these two politico-economic steady states, which are no Pareto-rankable. Second, I examine how technological evolutions affect the set of redistributive institutions that can be durably sustained, showing in particular how skill-biased technical change may cause the welfare state to unravel. Third, I model the endogenous determination of technology or organizational form that results from firms' tailoring the flexibility of their production processes to the distribution of workers' skills. The greater is human capital heterogeneity, the more flexible and wage-disequalizing is the equilibrium technology. Moreover, firms' choices tend to generate excessive flexibility, resulting in suboptimal growth or even self-sustaining technology-inequality traps. Fourth, I examine how institutions also shape the course of technology; thus, a world-wide shift in the technology frontier results in different evolutions of production processes and skill premia across countries with different social contracts. Finally, I ask what joint configurations of technology, inequality and redistributive policy are feasible in the long run, when all three are endogenous. I show in particular how the diffusion of technology leads to the exporting' of inequality across borders; and how this, in turn, generates spillovers between social contracts that make it more difficult for nations to maintain distinct institutions and social structures.
Keywords: No keywords provided
JEL Codes: D31; O33; J3; H10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technology (O39) | inequality (D63) |
| redistributive policies (H23) | inequality (D63) |
| human capital distribution (J24) | sustainability of social contracts (L14) |
| skill-biased technical change (J24) | viability of redistributive institutions (O17) |
| skill distribution (J24) | types of technologies adopted by firms (O14) |
| public policies (J18) | distribution of human capital (O15) |
| technology diffusion (O33) | inequality across borders (F55) |