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 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 (oberservable) 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
To study how the relative competitiveness of different types of firms evolve over time in the baseline and the two scenarios of the new technological regime, we show in Figure 5 the ratio of wage offers for middle and high tech firms divided by the low tech firm group for all three scenarios
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, 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). We carry out our analysis within the agent based Eurace@Unibi model (Deissenberg et al, 2008; Dawid et al, 2019), which captures the interplay of the labour, capital and goods market as well as the endogenous diffusion of new technologies in the firm population and the updating of worker skills due to on the job learning. Within the Eurace@Unibi model firms compete and are heterogeneous in productivity Irrespective of their general skill all workers can be employed and matched with any machine where the advantage of a higher skill level lies in the ability to learn faster during the endogenous formation of the specific skills on the job. Technical details such as the parameter choices can be found in Appendix A
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