On the Evolution of Wage Inequality in Acemoglu's Model of Directed Technical Change
MEA Discussion Paper No. 099-05
9 Pages Posted: 31 Jan 2009 Last revised: 29 Jul 2009
Date Written: September 1, 2005
In Acemoglu's model of directed technical change, the skill-premium increases in consequence of an increase in the relative supply of skilled labor. In this paper, I argue that other measures of wage inequality such as the Gini-coefficient do not necessarily rise as well. The Gini-coefficient depends positively on the skill-premium but the effect of an increase in the relative supply of skilled labor is ambiguous. A simulation of Acemoglu's model shows that the growth in the relative supply of skilled labor has led to increased wage inequality in the past but will lead to decreasing wage inequality in the future.
Keywords: Directed Technical Change, Wage Inequality
JEL Classification: J31, O33
Suggested Citation: Suggested Citation