Technological intensity and inter-sectoral dynamics of inequality: evidence from the OECD, 1970-1990

Abstract

Conceicao [1] found empirical support for a relationship between levels of GDP per capita and levels of inequality conforming to an augmented Kuznets curve, corresponding to a cubic augmentation of the traditional quadratic functional form first proposed by Kuznets [2]. Inspired by Galbraith [3], we analyse the dynamics of inequality dividing, for each country, the industries into two sectors those that are more technologically intensive are part of the K (for knowledge) sector, with the remaining industries being part of the C (for consumption) sector. We find that the between K and C sectors component of inequality is positively associated with income per capita, the within C sector component is negatively associated with income, and that the K sector component follows a cubic relationship similar to the augmented Kuznets hypothesis. These results help to understand the drivers of the dynamics of overall inequality. As a country grows richer, the earnings in the K sector increase relatively to the C sector. This description of the dynamics of inequality, and its relationship with technology, differs from the skill-biased technological change hypothesis, since technology is not considered to be a radio wave affecting inequality through the mediation of returns to skills, but rather is considered to be a fundamental, characteristic, differentiating industries in the way they generate profits and earnings.