Technological Progress And The Wage Gap

The past several decades witnessed both major changes in technology, including the rapid spread of computers in workplaces and in our lives, and a sharp increase in wage inequality. Though there has not a consensus on what should be responsible for the rise of relative wage of the skilled labor, the majority economists agree that technical change favors more skilled workers, replaces tasks previously performed by the unskilled, and exacerbates inequality. This thesis discusses the effect of technical change on wage inequality.If new GPT is skill-complementary, and can only be developed very costly, then only those high-skill workers can use new GPT. High ability workers will benefit immediately, for their adopting cost is very low, so the return to skill will rise. Through learning-by-doing, firms adopting new technology will lower their producing cost. Experiences from producing and academic research all contribute to the growth of knowledge. As a result, most of required skill can be learned through education. The increasing return to education (increasing relative wage) makes education more attractable. More and more researchers and worker with the required skill will switch into new sectors, and innovation speed will be more quickly. After a period of growth, relative wage between skilled and unskilled worker may be steady or slow down, if low-skill workers can also benefit from new GPT, or there is decreasing of scale in R&D. There will be multi equilibra, for two technologies may co-exist or the old can be replaced by the new one. High competition and flexible institutions bring rapid innovation and have a positive impact on human capital accumulation. Worker's human capital or producing capability depends on their working history. Because of decreasing rate of skill acquiring from LBD, human capital is positively related to the rate of product adoption. Some elder workers do not have capability to acquire new skill and adopt new technology because of their poor human capital. When labor market becomes more flexible, the process of the matching between appropriate technology and labor will be more efficiently. This means there is a widening gap between high-high combination and low-low combination. In a short time, because the economy is more efficiently than before, the demand for unskilled labor is reduced. Because of increasing return to education, especially when there is increasing uncertainty of technical change, becoming educated is more and more attractive. We then give an explanation of rising rate of becoming high-education workers in China, even if there is a rising rate of unemployment of skilled workers and a temporary downward pressure on the wage of skilled workers. In the forth chapter, we discuss the effect of outsourcing and foreign-direct-investment (FDI) from the north on the rate of technical change and wage gap between skilled and unskilled workers in the South and the north. Competition from the south reduced the demand for low skilled labor in the north, and their relative wage decreased, which making becoming skilled more attractive, increasing the supply of skilled labor. More skilled labor in the north will go into R&D sector, which speeding up the innovation rate, and making skilled labor in a more advantageous condition. The range of goodsproduced in the south will be determined by their efficiency relative to the north. The relative wage in the south will be determined by the technical change in the north, the rate of skill acquiring, the supply and quality of labor force, and the skill distribution of labor force in the south. Large supply of unskilled workers has a downward pressure on their wage. After opening up, skilled labor have new opportunities to be employed in skill-intensive FDI sectors. Their relative wage will increase than before. More people will want to get educated to be skilled workers. The increasing supply of skilled labor has a negative impact on relative wage in short-run, but in the long-run time, this will enlarge the market size of skil...