Über die Autorin bzw. den Autor

Gilles Saint-Paul is professor of economics at the Toulouse School of Economics and at the University of London's Birkbeck College. His books include The Political Economy of Labour Market Institutions and Dual Labor Markets.

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"The increase in earnings inequality in many countries over the past twenty-five years has been a major topic of academic study and policy debate, and many economists believe that technological developments have played a large role in this development. This book goes much further than existing studies and develops the various links between innovation and inequality. Gilles Saint-Paul covers most of the available approaches masterfully but is not afraid to push for a coherent view based on his own research. This book not only breaks new ground but also achieves a nice synthesis of much recent work in economics. This is a must-read for any graduate student or researcher interested in innovation or recent changes in the labor market."--Daron Acemoglu, Massachusetts Institute of Technology

"A well-crafted book offering a rigorous analysis of topical issues from a variety of original perspectives."--Giuseppe Bertola, University of Turin

"An exceptionally interesting, well-exposited, and timely volume."--David Autor, Massachusetts Institute of Technology

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Innovation and Inequality

Princeton University Press

Introduction

In the 17th century nearly all Europe experienced revolts of the work-people against the ribbon-loom, a machine for weaving ribbons and trimmings, called in Germany Bandmhle, Schnurmhle, and Mhlenstuhl. These machines were invented in Germany. Abb Lancellotti, in a work that appeared in Venice in 1636, but which was written in 1579, says as follows: "Anthony Mller of Danzig saw about 50 years ago in that town, a very ingenious machine, which weaves 4 to 6 pieces at once. But the Mayor being apprehensive that this invention might throw a large number of workmen on the streets, caused the inventor to be secretly strangled or drowned." In Leyden, this machine was not used till 1629; there the riots of the ribbon-weavers at length compelled the Town Council to prohibit it.

In 1768, a group of spinners broke into the home of James Hargreaves, the inventor of the "Spinning Jenny," a machine which was capable of doing the work of eight workers, and destroyed his machines.

In the early nineteenth century, textile workers-the Luddites-organized against the introduction of advanced machinery that made their skills redundant. This movement is described as follows on the Web page of Dr. Steve Anderson from Utah University:

For at least three hundred years the weavers from in and around the central English town of Nottingham, though commoners, enjoyed the status and rewards accorded to fine craftsmen. The weavers of Nottinghamshire produced lace and stockings that dominated the English markets and were prominent items in export trade. These products were hand made, often in the weaver's home.... In the first years of the 19th century stocking frames and the early automation of the power loom threatened this long-standing way of life.... The weavers complained bitterly that the machines made mass produced products of shamefully inferior quality. Naturally, the weavers saw the new technology as the most powerful tool of their new oppressor, the factory owner.... During a short period climaxing in the spring of 1812, inspired perhaps by the French Revolution and the writings of Thomas Paine, the weavers formed into something akin to a guerrilla army and took substantial control over the territory near Nottingham and several neighboring districts.... The Luddites often appeared at a factory in disguise and stated that they had come upon the orders of General Ned Ludd. These demands included restoration of reasonable rates of compensation, acceptable work conditions, and probably quality control. Faced by the intimidating numbers and the surprisingly disciplined actions of the Luddites, most factory owners complied, at least temporarily. Those that refused found their expensive machines wrecked.... The nonviolent period of Luddism ended at Burton's power loom mill in Lancashire on April 20, 1812. A large body of Luddites, perhaps numbering over a thousand attacked the mill, mostly with stick and rocks.... A government crackdown ensued, and many suspected Luddites were convicted, imprisoned, or hanged.

Such incidents have led to the famous controversy between Marx and Ricardo over the role of machinery. Marx forecast a world where innovation made workers ever more useless, leading to their impoverishment, along with a secular increase in the share of capital in national income. On the other hand, Ricardo and the neoclassical economists who followed him thought that innovation allowed a single worker to produce more output per unit of time, which led to an increase in wages and living standards.

The explosion in living standards over the last two centuries has proved that the neoclassicists were right, while Marx was wrong. This is why the most influential growth model used by economists is the Solow (1956) one, where the economy converges to a balanced growth path in which wages grow in line with productivity. In recent years, however, economists have documented a worrying trend toward greater wage inequality in the United States and other countries. Not only has the distribution of wages widened, but real wages have fallen for the lowest paid workers (the bottom 20%, say), despite continuing growth in GDP per capita.

A large empirical literature has studied this phenomenon and has found that the returns have increased for all the dimensions of skill: education, experience, and unobserved ability. A number of explanations have been proposed and they are detailed in the following paragraphs.

A first explanation, put forward by, for example, DiNardo et al. (1996) and Blau and Kahn (1996), ascribes the rise in inequality to an increased role for market forces, relative to institutional forces, in the determination of wages. As conservative governments came into power in the United Kingdom and the United States in 1979 and 1981, respectively, wages became more closely aligned with individual productivity, and were less determined by union contracts. This situation creates a move toward greater wage inequality because unions tend to compress wages between skill levels. On the other hand, unions tend to increase income inequality by putting some workers out of jobs, but that is not reflected in measures of wage inequality since these measures take into account only the employed. The merit of this explanation is that it accounts for the fact that inequality has not increased in countries such as France and Germany where labor-market institutions have not evolved. On the other hand, it fails to explain the fact that inequality started increasing around 1975, long before the reforms of Margaret Thatcher and Ronald Reagan were implemented.

A second explanation is that because of immigration by unskilled workers, skilled workers have become relatively scarcer in the labor market. This explanation has been discarded on the grounds that whereas immigrants tend to be less skilled than natives in the destination country, this trend is more than offset by the increase in secondary and tertiary education enrollment rates, which tends to raise the relative supply of skilled workers. Thus, it appears that the rise in wage inequality must be explained by shifts in relative demand, rather than shifts in relative supply.

A third explanation is international trade. This says that developed countries are now immersed in a world economy in which factor-price equalization prevails. The relative wages of unskilled workers are now determined by their relative scarcity worldwide, rather than within a given country. As a result, integration in the world economy should be associated with widening wage inequality in developed countries, and shrinking inequalities in developing countries. This is essentially the famous Stolper-Samuelson theorem (see Stolper and Samuelson 1941): any factor that is scarce in a given country, relative to the rest of the world, sees its return fall when the country opens up to trade. While the debate on this hypothesis is not totally settled,...