Technological Change, Sectoral Shifts and the Distribution of Earnings: A Human Capital Model

The paper studies the long-run impact of technological change on the labour market in a two-sector model with heterogeneous workers. First it is assumed, in line with stylized facts, that inventions increase both productivity and skill requirements. Such skill-intensive inventions cause increases in inequality, shifts of labour out of the technologically dynamic sector, and relative price changes. In contrast, a skill-neutral invention causes neither changes in inequality nor sectoral shifts, while a skill-extensive invention reduces inequality and causes sectoral shifts toward the innovative sector. Only a skill-neutral invention leads unequivocally to a Pareto improvement