Employer Power, Labor Saving Technical Change, and Inequality

26 Pages Posted: 15 May 2018

See all articles by Nancy H. Chau

Nancy H. Chau

Charles H. Dyson School of Applied Economics of Management, Cornell University; IZA Institute of Labor Economics

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2018

Abstract

How does employer power mediate the impact of labor saving technical change on inequality? This question has largely been neglected in the recent literature on the wage and distributional consequences of automation, where the labor market is assumed to be competitive. In a simple task-based model, with search frictions which generate an equilibrium wage distribution even with identical firms and workers, we explore the implications of labor saving technical change for equilibrium outcomes. We show that employer power is a crucial determinant of the nuanced comparative statics of technical change. Among a range of results, we show the possibility of Kuznetsian inverse-U relationships between employer power and inequality, and labor saving technical change and inequality. We further show that when employer power is sufficiently low, labor saving technical change can both increase total output and increase wage inequality. With free entry of firms, labor saving technical change leads to both a first order dominating shift in the age distribution and an increase in the Gini coefficient of wage inequality.

Suggested Citation

Chau, Nancy H. and Kanbur, Ravi, Employer Power, Labor Saving Technical Change, and Inequality (May 2018). CEPR Discussion Paper No. DP12925, Available at SSRN: https://ssrn.com/abstract=3178096

Nancy H. Chau (Contact Author)

Charles H. Dyson School of Applied Economics of Management, Cornell University ( email )

Ithaca, NY
United States

IZA Institute of Labor Economics

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

Ravi Kanbur

Cornell University ( email )

301-J Warren Hall
Ithaca, NY 14853
United States
607-255-7966 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://www.kanbur.dyson.cornell.edu

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

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

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