Knowledge hierarchies in the labor market

Many workers produce intangible, knowledge-intensive inputs, rather than participating directly in the production process. We develop a model where the labor market organizes itself in a knowledge hierarchy. Skills are segmented into successive clusters. Each cluster buys knowledge from the next one and sells knowledge as a production input to the preceding one. The model is useful to study the impact of improvements in the technology of knowledge transmission on inequality. It is shown that inequality goes up at the top of the income distribution, but not at the bottom.