Technology Diffusion and Income Inequality



This paper examines the impact of technology diffusion on income inequality and welfare. We study this question in a framework of a real business cycle with concentrated capital ownership. The business cycle is driven by the technology diffusion process which raises capital intensity and generates skill premium. As a result, income of skilled workers increases considerably and produces inequality between skilled and unskilled workers. We analyse welfare effects of the adoption of new technology on both groups of agents and under perfect foresight and uncertainty. We find that capital owners profit from technology adoption in both scenarios although the welfare benefit is much higher under perfect foresight. For the workers, we find the opposite. They gain from adopting the new technology when uncertainty is assumed while their welfare decreases under perfect foresight.
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Sebastian Gryglewicz                                     Agnieszka Markiewicz
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