In the early 1990’s Argentina launched a widespread liberalization process, involving, among other things, large privatizations and financial and trade reforms. Between 1990 and 1994 Argentina experienced a rapid increase in Total Factor Productivity (TFP), Real GDP per capita and the skill premium the extra-wage received by skilled labour compared to its past. At the same time, unemployment rate went from 7% in 1992 to 13% in 1998, and Gini coefficient from 0.422 to 0.493, representing a greater economic inequality. As suggested by Autor, Katz & Krueger (1998) changes in production techniques, organizational changes, and capital deepening are associated with the incorporation of skill-biased technologies.
The goal of this paper is to develop a theoretical framework that can replicate qualitatively Argentinian experience through a skill-biased technological change (SBTC). We combine two literatures. On the one hand, there is a literature that studies unemployment and wage inequality leaded by Acemoglu. In his paper ”Changes in unemployment and wage inequality” (1999, American Economic Review), he studies how a SBTC can generate a sufficiently large gap between the productivity of skilled and unskilled workers such that there is a boost in skill-premium and unemployment rate.
This result is due to a shift from a pooling to a separating equilibrium. In this paper individuals’ characteristics are exogenous and they differ in the level of human capital they were born with. Unemployment is a result of the particular labour market structure: a firm matches a worker and hiring takes place if the worker’s human capital level suits the firm’s requirements.
On the other hand, there is a literature that studies wealth distribution. In ”Income distribution and macroeconomics” (1993, Review of Economic Studies), Galor & Zeira present an overlapping-generations framework with parental altruism to show how capital market imperfections and a non convexity in the human capital technology generate inequality in the short and in the long run. In this setting individual decisions are endogenous. In particular, agents decide whether to study or not: education improves individuals’ productivity but because of capital market imperfections the cost of education may be higher than its benefits. There is no source of uncertainty in this framework.
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Skill-Biased Technological Change, Unemployment and Inequality Theory and Evidence
