Abstract
In this paper, we study the effect of different types of technological regime changes on the evolution of industry concentration and wage inequality. Using a calibrated agent-based macroeconomic framework, the Eurace@Unibi model, we consider scenarios where the new regime is characterized by a finite time period of more frequent respectively more substantial changes in the frontier technology compared to the old regime. We show that under both scenarios, the regime change leads to an increase in the heterogeneity of productivity in the firm population and to increased market concentration, where effects are much less pronounced if the new regime differs from the old one with respect to the frequency of innovations. If the new regime is characterized by an increase of the size of the frontier jumps along the technological trajectory, the evolution of the wage inequality has an inverted U-shape with a large fraction of workers profiting in the very long run from high wages offered by dominant high-tech firms. Finally, it is shown that (observable) heterogeneity of worker skills plays an important role in generating these dynamic effects of technological regime changes.
Highlights
Increasing polarization in the last decades is a major trend in OECD economies
If the new regime is characterized by an increase of the size of the frontier jumps along the technological trajectory, the evolution of the wage inequality has an inverted U-shape with a large fraction of workers profiting in the very long run from high wages offered by dominant high-tech firms
Using a framework incorporating heterogeneous workers and firms as well as endogenous technology choices of firms and on-the-job learning of workers, we examine how these effects emerge over time and in how far they differ between scenarios in which the new technological regime is characterized by more frequent respectively more substantial productivity increasing innovations compared to the baseline regime
Summary
Increasing polarization in the last decades is a major trend in OECD economies. On the worker-side, wages between high and low educated employees diverge (Autor et al 2003; Autor et al 2020b), employment dynamics polarize in a U-shaped pattern across skill groups (Goos and Manning 2007; Goos et al 2014; Autor and Dorn 2013) and income for top earners further pulls away (Atkinson et al 2011; Saez and Zucman 2020). Accelerated technological change leads to uneven adoption rates of technologies under skill differences among firms and a shift in demand to high ability workers, which in turn increases wage inequality. Caiani et al (2019) show that higher wages for lower skilled workers leads to stronger economic growth in an agent-based model with a segmented labour market, heterogeneous propensities to consume and endogenous innovation rates. The specific contribution of our paper relative to this literature is that we focus on short and long run implications of a temporary acceleration of the speed of the technological frontier and that we explicitly analyse how the type of technological change, driven by few large innovations or by many small ones, influences the industry dynamics and the evolution of wage distribution. Technical details such as the parameter choices as well as results of statistical tests can be found in the Appendix A–B
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