Technology, Unemployment, and Relative Wages in a Global Economy

29 Pages Posted: 29 Jun 2000 Last revised: 29 Nov 2022

See all articles by Donald R. Davis

Donald R. Davis

National Bureau of Economic Research (NBER); Columbia University

Date Written: June 1996

Abstract

Arguably the most important development in recent decades in US factor markets is the decline in the relative wage of the unskilled. By contrast, in Europe it is undoubtedly the rise and persistence of unemployment. Technology has been identified as a key reason for the rising US wage inequality, while labor market rigidities are often cited as a key reason for European unemployment. This paper seeks to provide a unified account of these major factor market developments. It models the impact of technical change on relative wages and unemployment in a world in which one country has flexible and the other rigid labor market institutions. The results depart significantly but sensibly from what one would expect in a fully flexible wage world. A few stylized facts help to narrow the field to a few candidates to account for these factor market developments.

Suggested Citation

Davis, Donald R., Technology, Unemployment, and Relative Wages in a Global Economy (June 1996). NBER Working Paper No. w5636, Available at SSRN: https://ssrn.com/abstract=225558

Donald R. Davis (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Columbia University ( email )

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United States

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