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The economics of productive systems: segmentation and skill-biased change

Duranton, Gilles (1998) The economics of productive systems: segmentation and skill-biased change. CEPDP, 398. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 398

Abstract

In this paper we introduce the concept of productive systems. Assuming a complementarity between skills and technology (more ''complex'' technologies are intrinsically more productive but they require a more skilled labour force) and gains from the division of labor, firms face a trade-off between simple technologies for which the labor force is abundant and more complex technologies with less division of labor. In equilibrium, the economy is partitioned into productive systems working at different levels of complexity. The distribution of skills determines the boundaries of the productive systems, which in turn determine the wages. Thus, changes in the distribution of skills can have a dramatic effect upon wage inequalities. In particular an increase in skilled workers can induce first higher wages for all workers and then higher wages for the skilled but lower wages for the unskilled. This seems consistent with the recent evolution of the labor market.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 1998 Gilles Duranton
Subjects: H Social Sciences > HD Industries. Land use. Labor
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Geography and Environment
Date Deposited: 31 Jul 2008 13:34
Last Modified: 01 Oct 2010 09:15
URI: http://eprints.lse.ac.uk/id/eprint/20259

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