Technical Change, Inequality and Labor Market

Innovation and Economic Growth

Article Snapshot


Daron Acemoglu


Journal of Economic Literature, March 2002, Vol 40, pp. 7-72


This paper looks at how technology affects work and wages.

Policy Relevance

Technology interacts with wage policy and the organization of work to affect equality and wages; wage policy can also affect technology choices.

Main Points

  • Most people see technology as favoring educated (skilled) workers, replacing unskilled workers, and increasing inequality.

  • Data from the twentieth century, especially the past sixty years, when computers were introduced, supports this. Technology was one driver of changes in wage patterns and increased inequality.
    • Technology has affected the way work and workers are organized, reducing unionization and increasing trade, and this lowers the wages of unskilled workers.
    • There has been an acceleration in the demand for skills beginning in the 1970s.
    • There is some evidence that increase in the supply of colleged-educated labor increases the tendency of the economy to rely more on skilled labor.

  • Wage inequality effects are less in Europe, where firms must pay the same wage to educated workers with differing skill levels, and this means that firms make different choices about technology.
    • In the United States, adopting new technologies is more profitable.

  • In the nineteenth century, much technology replaced skilled workers (such as weavers) with unskilled workers.

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