One or Many Kuznets Curves? Short and Long Run Effects of the Impact of Skill-Biased Technological Change on Income Inequality

42 Pages Posted: 2 Aug 2004

See all articles by Gianluca F. Grimalda

Gianluca F. Grimalda

University of Warwick - Centre for the Study of Globalisation and Regionalisation

Marco Vivarelli

Universita Cattolica del Sacro Cuore, Milano; IZA Institute of Labor Economics

Date Written: July 2004

Abstract

We draw on a dynamical two-sector model and on a calibration exercise to study the impact of a skill-biased technological shock on the growth path and income distribution of a developing economy. The model builds on the theoretical framework developed by Silverberg and Verspagen (1995) and on the idea of localised technological change (Atkinson and Stiglitz, 1969) with sector-level increasing returns to scale. We find that a scenario of catching-up to the high-growth steady state is predictable for those economies starting off with a high enough endowment of skilled workforce. During the transition phase, if the skill upgrade process for the workforce is relatively slow, the typical inverse-U Kuznets pattern emerges for income inequality in the long run. Small scale Kuznets curves, driven by sectoral business cycles, may also be detected in the short run. Conversely, economies initially suffering from significant skill shortages remain trapped in a low-growth steady state. Although the long-term trend is one of decreasing inequality, small-scale Kuznets curves may be detected even in this case, which may cause problems of observational equivalence between the two scenarios for the policy-maker. The underlying factors of inequality, and the evolution of a more comprehensive measure of inequality than the one normally used, are also analysed.

Keywords: skill-biased technological change, inequality, Kuznets curve, catching-up

JEL Classification: O33, O41

Suggested Citation

Grimalda, Gianluca F. and Vivarelli, Marco, One or Many Kuznets Curves? Short and Long Run Effects of the Impact of Skill-Biased Technological Change on Income Inequality (July 2004). IZA Discussion Paper No. 1223. Available at SSRN: https://ssrn.com/abstract=571707

Gianluca F. Grimalda (Contact Author)

University of Warwick - Centre for the Study of Globalisation and Regionalisation ( email )

Coventry CV4 7AL, CV4 7AL
United Kingdom
+44 (0)24 7657 4424 (Phone)
+44 (0)24 7657 2548 (Fax)

Marco Vivarelli

Universita Cattolica del Sacro Cuore, Milano ( email )

Largo Gemelli 1
Milano, 20123
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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