Schumpeterian Growth Theory and the Dynamics of Income Inequality
Econometrica · 2002 · Volume 70 · Issue 3
Abstract
In this lecture, it is argued that Schumpeterian Growth Theory, in which growth is driven by a sequence of quality-improving innovations, can shed light on two important puzzles raised by the recent evolution of wage inequality in developed economies. The first puzzle concerns wage inequalitybetweeneducational groups, which has substantially risen in the US and the UK during the past two decades following a sharp increase in the supply of educated labor. The second puzzle concerns wage inequalitywithineducational groups, which accounts for a large fraction of the observed increase in wage inequality, although in contrast to between-group wage inequality it has mainly affected thetemporarycomponent of income.
Keywords
innovation, wage structure, between-group wage inequality, within-group wage inequality, general purpose technology, skill premium, adaptability premium
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