Contents

Abstract 1278

Keywords 1278

1. Introduction 1279

2. A look at the facts 1281

2.1. Labormarketinequalities 1281

2.2. Technological change 1289

2.2.1. Total factor productivity accounting 1290

2.2.2.

2.2.3. Reconciling the acceleration in investment-specific productivity growth with the

slowdown in TFP: general purpose technology and learning 1295

2.2.4. Factor-specific productivity accounting 1297

3. Skill-biased technical change: Inside the black box 1298

3.1. Capital-skill complementarity 1298

3.1.1. Further applications of the capital-skill complementarity hypothesis 1300

3.2. InnateskillsandtheNelson-Phelpshypothesis 1301

3.2.1. FurtherapplicationsoftheNelson-Phelpshypothesis 1303

Handbook of Economic Growth, Volume 1B. Edited by Philippe Aghion and StevenN. Durlauf

© 2005 Elsevier B.V All rights reserved

DOI: 10.1016∕S1574-0684(05)01020-8

3.3. Endogenousskill-Biasedtechnicalchange 1304

3.3.1. Sourcesoftheskill-Biasinrecenttimes 1307

3.4. Ahistoricalperspectiveontheskillpremium 1308

3.4.1. Capital-skill complementarity 1308

3.4.2. Directed technical change 1311

3.5. Technology and the gender gap 1311

3.5.1. Technological change in the market 1312

3.5.2. Technological change in the household 1312

4. Technical change and the returns to experience 1313

4.1. Experience with general purpose technologies 1313

4.2. Vintage-specificity of experience 1315

4.3. Technology-experience complementarity in adoption 1316

4.4. On-Ihe-JoBtrainingwithskill-Biasedtechnologicalchange 1317

5. Inside the firm: The organization of work 1319

5.1. TheMilgrom-RoBertshypothesis: IT-driven organizational change 1320

5.1.1. Implications for the wage structure 1320

5.1.2. Empirical evidence on the complementarity Between technology, organizational

change and human capital 1322

5.2.

5.3. Discussion 1325

6. Technical progress as a source of change in laBor market institutions 1325

6.1. Skill-Biased technology and the fall in union density 1327

6.2. Skill-Biased technology and the fall in centralized Bargaining 1328

6.3. Discussion 1329

7. Technological change in frictional laBor markets 1331

7.1. Technological progress and frictional unemployment 1332

7.2. Technological heterogeneity and the returns to luck 1333

7.3. Vintage human capital with frictions 1334

7.3.1. Occupation-specific human capital 1336

7.3.2. A precautionary demand for general skills 1336

7.3.3. Explaining the fall in real wages 1337

7.4. Random matching vs. directed search as source of luck 1338

8. Technology-policy complementarity: United States vs. Europe 1339

8.1. TheKrugmanhypothesis 1340

8.2. Rise in microeconomic turBulence 1342

8.2.1. The role of wage rigidity 1342

8.2.2. The role of welfare Benefits 1344

8.3. Slowdown in total factor productivity 1346

8.4. Acceleration in capital-emBodied technical change 1346

8.5. Skill-Biased technical change 1349

8.6. Endogenous technology adoption 1350

8.7. Sectoral transformation 1352

8.8. Discussion 1353

9. Welfareandpolicyimplications 1353

9.1. Lifetimeearningsinequality 1354

9.2. Consumption inequality 1355

9.3. Welfare implications 1356

9.3.1. Insurance and opportunities in the welfare analysis of wage inequality 1357

9.3.2. Discussion 1358

9.4. Brief directions for policy 1359

10. Concluding remarks 1360

Acknowledgements 1361

References 1362