Sectoral Heterogeneity, Income Inequality and Productivity Dynamics




Income Distribution, Economic Growth, Factor Productivity


An intricate dynamic pattern has been commonly observed in many developed countries during the past decades. This pattern contains a simultaneous rise in the following economic variables: (i) total factor productivity, (ii) educated labor supply, (iii) wage-gap between high- and low-skilled workers, and (iv) income inequality. Typical explanations for the different elements of this pattern assume a skill-biased technical change (SBTC) or capital-skill complementarity. In this study we offer a complementing explanation for these phenomena, which is based on sectoral heterogeneity and endogenous factor mobility, rather than on an SBTC. We show that sectoral heterogeneity can amplify the effects of a technical change, whether skill-biased or general, in a manner that generates the four elements of the above described dynamic pattern. Furthermore, inequality can perform also a Kuznets-curve pattern, as was observed in several countries, in contrast to the inequality dynamics in typical SBTC models.


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How to Cite

Assaf Sarid, & Maoz, Y. D. . (2021). Sectoral Heterogeneity, Income Inequality and Productivity Dynamics. Journal of Income Distribution®, 1.