The Role of Flexible Production in Earnings Inequality

Abstract

Increasing tention from economists. The broad consensus is that the main reason earnings inequality has increased in the United States over the past two decades is technical change, leading to an increased relative demand for skilled workers. The specific change in technology most often cited is improvements in computer technology (Krueger 1993; Berman, Bound, and Griliches 1994; Auter, Katz, and Krueger 1997). This paper argues that a different type of technological change, the shift from mass to flexible production, has been a more important cause of increasing inequality. Flexible production increases the relative demand for skilled, highly paid workers and decreases the demand for unskilled, lowwage workers, thereby creating greater earnings inequality.