Different beliefs about the fairness of social competition and what determines income inequality influence the redistributive policy chosen in a society. But the composition of income in equilibrium depends on tax policies. We show how the interaction between social beliefs and welfare policies may lead to multiple equilibria or multiple steady states. If a society believes that individual effort determines income, and that all have a right to enjoy the fruits of their effort, it will choose low redistribution and low taxes. In equilibrium, effort will be high and the role of luck will be limited, in which case market outcomes will be relatively fair and social beliefs will be self-fulfilled. If instead, a society believes that luck, birth, connections, and/or corruption determine wealth, it will levy high taxes, thus distorting allocations and making these beliefs self-sustained as well. These insights may help explain the cross-country variation in perceptions about income inequality and choices of redistributive policies.

The digital divide refers to the separation between those who have access to digital information and communications technology (ICT) and those who do not. Many believe that universal access to ICT would bring about a global community of interaction, commerce, and learning resulting in higher standards of living and improved social welfare. However, the digital divide threatens this outcome leading many public policy makers to debate the best way to bridge the divide. Much of the research on the digital divide focuses on first order effects regarding who has access to the technology, but some work addresses the second order effects of inequality in the ability to use the technology among those who do have access. In this paper, we examine both first and second order effects of the digital divide at three levels of analysis the individual level, the organizational level, and the global level. At each level, we survey the existing research noting the theoretical perspective taken in the work, the research methodology employed, and the key results that were obtained. We then suggest a series of research questions at each level of analysis to guide researchers seeking to further examine the digital divide and how it impacts citizens, managers, and economies.

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This paper studies the conditions under which the scarcity of a factor (in particular, labor) encourages technological progress and technology adoption. In standard endogenous growth models, which feature a strong scale effect, an increase in the supply of labor encourages technological progress. In contrast, the famous Habakkuk hypothesis in economic history claims that technological progress was more rapid in 19th-century United States than in Britain because of labor scarcity in the former country. Similar ideas are often suggested as possible reasons for why high wages might have encouraged rapid adoption of certain technologies in continental Europe over the past several decades. I present a general framework for the analysis of these questions. I define the concept of strongly labor saving technological change as follows. Suppose that the aggregate production function of the economy is supermodular in a vector of technologies denoted by. Technological progress is strongly labor saving if the production function exhibits decreasing differences in and labor. Conversely, technological progress is strongly labor complementary if the production function exhibits increasing differences in and labor. The main result of the paper shows that labor scarcity will encourage technological advances if technological progress is strongly labor saving. In contrast, labor scarcity will discourage technological advances if technological progress is strongly labor complementary. I provide examples of environments in which technological progress can be strongly labor saving and also show that such a result is not possible in certain canonical models. These results clarify the conditions under which labor scarcity and high wages encourage technological progress and the reason why such results were obtained or conjectured in certain settings but do not always apply in many models used in the growth literature.

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Abstract In recent years a "unified theory" has emerged out of labor economics, which argues that a combination of "macroeconomic shocks" and flexible labor market institutions in the U.S. has produced strong upward trends in wage inequality, while these same shocks have produced high unemployment and low employment growth in Europe as a side effect of the wage stability preserved by that continent's rigid labor market institutions. This paper takes issue with the common view that inequality trends are best explained by a model of stable institutions interacting with changing macroeconomic forces. It argues that European institutions in fact have changed, and that institutional changes which were triggered by the broader macroeconomic forces have affected the form as well as the size of inequality trends. While the U.S. has experienced rising strong skill-based wage inequality, institutional change in France has produced an upward trend in the density of insecure jobs and an increased concentration of low-skill workers in insecure jobs. These results challenge the view that low employment rates is the sole mechanism through which European labor markets have absorbed asymmetric shocks to their demand for labor.

the MacArthur Foundation for financial support and to the Institute for Advanced Study for its hospitality over The distribution of human capital and income lies at the center of a nexus of forces that shape a country’s economic, institutional and technological structure. I develop here a unified model to analyze these interactions and their growth consequences. Five main issues are addressed. First, I identify the key factors that make both European-style “welfare state ” and US-style “laissez-faire ” social contracts sustainable.; I also compare the growth rates of these two politico-economic steady states, which are no Pareto-rankable. Second, I examine how technological evolutions affect the set of redistributive institutions that can be durably sustained, showing in particular how skill-biased technical change may cause the welfare state to unravel. Third, I model the endogenous determination of technology or organizational form that results from firms ’ tailoring the flexibility of their production processes to the distribution of workers ’ skills. The greater is human capital heterogeneity, the more flexible and wage-disequalizing is the equilibrium technology. Moreover, firms ’ choices tend to generate excessive flexibility, resulting in suboptimal growth or even self-sustaining technology-inequality traps. Fourth, I examine how institutions also shape the course of technology; thus, a world-wide shift in the technology frontier results in different evolutions of production

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To help explain differences between the US and EU “social contracts” as well as other cultural differences, we present a model of rational voting over redistribution where individual attitudes toward others are endoge-nously determined. Individuals differ in their productivities and their degree of social concern, and their behavior is influenced by moral stan-dards. According to these, agents determine what they take to be proper behavior, here identified with the average labor supply, and they judge others accordingly. They increase their esteem for those who perform in excess of the norm and decrease their esteem for those who work less. This pertains to their self-esteem as well, which varies in relation to their own performance. Attitudes toward others influence the desired extent of redistribution. There are multiple politico-economic equilibria. In one equilibrium all individuals conform to proper behavior, their esteem for others is not biased towards any particular type, and the majority vote for

This paper explores the connection between education and wage inequality in nine European countries. We exploit the quantile regression technique to calculate returns to lower secondary, upper secondary and tertiary education at different points of the wage distribution. We find that in most countries returns to tertiary education are highly increasing when moving from the lower to the upper quantiles. This finding suggests that an educational expansion towards tertiary education is expected to increase overall within-groups inequality in Europe. In turn, returns to secondary education are quite homogeneous across quantiles, suggesting that an educational expansion towards secondary education is expected to have only a limited impact on within-groups dispersion. Using data from the last decades, we describe changes in the conditional wage distribution of the surveyed countries. A common feature in Europe is that over the last years wage dispersion increased within the high educated. I.