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Precautionary Demand for Education, Inequality, and Technological Progress

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Abstract

This paper offers an explanation for the evolution of wage inequality within and between industries and education groups over the past several decades. The model is based on the disproportionate depreciation of technology-specific skills versus general skills due to technological progress, which occurs randomly across sectors. Consistent with empirical evidence, the model predicts that increasing randomness is the primary source of inequality growth within uneducated workers, whereas inequality growth within educated workers is determined more by changes in the composition and return to ability. Increasing randomness generates a “precautionary” demand for education, which we show empirically to be significant.

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Authors and Affiliations

  1. Department of Economics, Hebrew University, Jerusalem, 91905, Israel

    Eric D. Gould & Omer Moav

  2. Department of Economics, Ohio State University, Columbus, Ohio, 43210

    Bruce A. Weinberg

Authors
  1. Eric D. Gould
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  2. Omer Moav
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  3. Bruce A. Weinberg
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Gould, E.D., Moav, O. & Weinberg, B.A. Precautionary Demand for Education, Inequality, and Technological Progress. Journal of Economic Growth 6, 285–315 (2001). https://doi.org/10.1023/A:1012782212348

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