The Economy is Not Flat: The Technology Gradient in the Mass Market Economy

51 Pages Posted: 27 Apr 2016 Last revised: 6 Apr 2021

See all articles by David Mayer-Foulkes

David Mayer-Foulkes

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics; UCLA Blum Center on Poverty and Health in Latinamerica

Kurt Hafner

Heilbronn University

Date Written: April 5, 2021

Abstract

In an industrial market economy, the interaction between monopolistic and competitive sectors results in within-country productivity differences, inequality and inefficiency. We demonstrate this using a two sector mass market economy model. The monopolistic sector represents large-scale, mass production and is associated with innovation and market power, while the competitive sector represents small-scale production and engages instead in technological absorption. The endogenous dynamics of technological change between the two sectors generate a steady state technology gradient, with the competitive sector lagging behind. This technology gradient is a key endogenous feature of the industrial market economy, associated with economic growth, that generates inequality and inefficiency. Inequality is generated in two ways: innovation profits are concentrated among a few owners of large-scale innovation, while economy-wide wage levels reflect the lagging small-scale technological level. The model shows there are innovative-distributive policies that can increase efficiency in production, innovation, and absorption, and restore income equality, increasing wages and reducing profits. A cointegration and weak exogeneity panel study of US states between 1997 and 2011 corroborates that the large-scale sector drives aggregate employment, wages and inequality, while top income inequality makes the technology gradient steeper.

Keywords: Mass Production, Technological Change, Efficiency Inequality

JEL Classification: E10, O11, O38

Suggested Citation

Mayer-Foulkes, David and Hafner, Kurt, The Economy is Not Flat: The Technology Gradient in the Mass Market Economy (April 5, 2021). Available at SSRN: https://ssrn.com/abstract=2770733 or http://dx.doi.org/10.2139/ssrn.2770733

David Mayer-Foulkes (Contact Author)

Centro de Investigación y Docencia Económicas (CIDE) - Division of Economics ( email )

Carretera Mexico Toluca 3655
01210 Mexico, D.F.
Mexico
+52 55 5727 9839 (Phone)
+52 55 5727 9878 (Fax)

HOME PAGE: http://www.cide.edu/investigador/profile.php?IdInvestigador=25

UCLA Blum Center on Poverty and Health in Latinamerica

10833 Le Conte Ave
Los Angeles, CA 90095
United States
(310) 825-7354 (Phone)

HOME PAGE: http://https://blumcenter.ucla.edu/

Kurt Hafner

Heilbronn University ( email )

Max-Planck-Str. 39
Heilbronn, BW 74081
Germany

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