TECHNOLOGICAL-CHANGE, SECTORAL SHIFTS AND THE DISTRIBUTION OF EARNINGS - A HUMAN-CAPITAL MODEL

The paper studies the long-run effect of technological change on a heterogeneous labour market. The innovation's impact on the allocation of workers between industries and on the distribution of earnings depends critically on how the technical change alters skill requirements. skill-using inventions, which raise productivity and skill requirements, increase inequality and tend to shift labour out of the innovating sector. Skill-neutral inventions cause neither changes in inequality nor, in general, sectoral shifts; skill-saving inventions reduce inequality and tend to shift labour towards the innovating sector. Only a skill-neutral invention can lead to a Pareto improvement.