Technology spillover and wage inequality

This paper proposes a general but simple model to explain the following phenomenon: the fluctuation of wage inequalities between educational groups in the U.S. and other OECD countries in different time periods. The model is based on an expanding variety of capital goods with technology spillovers from the skilled to the less-skilled groups. We claim that the technology spillover between groups of workers with different skills within a country itself sufficient to generate a cyclical long-run wage premium pattern. To be specific, wage inequalities between these two groups of workers could either increase or decrease with a surge in the relative supply of skilled labor, depending upon the size of the relative supply of skilled labor as well as efficiency of technology spillover to workers of different skills.