Wage Inequality, Skills and Mastering New Technologies

Abstract

In this paper I provide a new explanation for the increasing inequality between skilled and unskilled. This work introduces a problem solving based model in which agents invest in technological innovations to solve problems and sell their solutions in the market. Each agent has feasible set they can solve which depends on their skills and the set of technology they have access to. However, unlike the skilled biased technological change explanation, I do not assume that new technologies are necessarily complementary with skills. Instead, skills will play a role in how fast agents are able to adopt new technologies. High skilled individuals will adopt new technologies a lower cost relative to the unskilled. Under this frame, the model sets two different mechanisms that feed the wage gap between skilled and unskilled: productivity and access to the latest technological innovations.