TY - JOUR
T1 - Vintage Capital and Inequality
AU - Jovanovic, Boyan
N1 - Funding Information:
* I thank the NSF and the C. V. Starr Center at NYU for financial help, Silvio Rendon and Levent Kockesen for helping with the research, and Daron Acemoglu, Will Baumol, Roland Benabou, Doug Dwyer, Chuck Hulten, Rody Manuelli, Steve Olley, Steve Parente, Victor Rios-Rull, and Herve Roche for comments. I especially thank David Andolfatto, Jeremy Greenwood, and Nezih GÇuÇner for detailed comments on the entire paper. Its original title was ``Obsolescence of Capital,'' and I got the idea for it after seeing a preliminary version of Acemoglu 1996).
PY - 1998/4
Y1 - 1998/4
N2 - If machines are indivisible, a vintage capital model must give rise to income inequality. If new machines are always better than old ones and if society cannot provide everyone with a new machine all of the time, inequality will result. I explore this mechanism in detail. If technology resides in machines and if a firm or worker must use just one technology at a time, a variety of machines will be in use, and workers' productivities will differ. This is because not everyone can be given the latest vintage machine all of the time. Inequality thus originates in the limited capacity of the capital goods sector. If machine quality and skill are complements, a worker who is paired with the best machine will acquire more skill, and inequality persists indefinitely. Moreover, if the used equipment market or the process of labor turnover function without frictions, a perfect positive assignment between the quality of labor and of capital can be maintained by a process of continual reassignment. This serves to enhance the degree of equilibrium inequality. Paradoxically, in this type of model, free migration of labor across borders raises cross-country inequality instead of lowering it as it does in some other models.Journal of Economic LiteratureClassification Number: O31.
AB - If machines are indivisible, a vintage capital model must give rise to income inequality. If new machines are always better than old ones and if society cannot provide everyone with a new machine all of the time, inequality will result. I explore this mechanism in detail. If technology resides in machines and if a firm or worker must use just one technology at a time, a variety of machines will be in use, and workers' productivities will differ. This is because not everyone can be given the latest vintage machine all of the time. Inequality thus originates in the limited capacity of the capital goods sector. If machine quality and skill are complements, a worker who is paired with the best machine will acquire more skill, and inequality persists indefinitely. Moreover, if the used equipment market or the process of labor turnover function without frictions, a perfect positive assignment between the quality of labor and of capital can be maintained by a process of continual reassignment. This serves to enhance the degree of equilibrium inequality. Paradoxically, in this type of model, free migration of labor across borders raises cross-country inequality instead of lowering it as it does in some other models.Journal of Economic LiteratureClassification Number: O31.
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U2 - 10.1006/redy.1998.0013
DO - 10.1006/redy.1998.0013
M3 - Article
AN - SCOPUS:0001330617
SN - 1094-2025
VL - 1
SP - 497
EP - 530
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
IS - 2
ER -