Wage inequality and the New Economy

Many economists have argued that the observed increase in wage inequality in developed economies over the past 30 years is due to skill-biased technical progress. In this paper we put forward a somewhat different technology-based argument, namely that the increased inequality was caused by technical change linked to the pervasive innovation wave associated with the New Economy. This technical change was not skill-biased in the usual sense, but rather raised the reward to adaptability. This alternative approach based on the notion of 'general-purpose technology' can shed light on a number of outstanding puzzles on the evolution of wage inequality both between and within educational groups.