Endogenous Technological Change and Income Inequality: a VAR approach

This thesis focuses on the role of technological progress in determining income inequality, while seeking evidence of its possible endogeneity. Using data covering the period 1963–2017 from various official sources, we conducted an empirical analysis using VAR methodology to estimate the dynamic response of various indicators of wage inequality to a relative supply shock of skilled labor, following the idea of Acemoglu (2002), and to an exogenous technology shock, identified as the only one that can affect the TFP in the long run as in Delle Foglie (2021). We confirmed and partially expanded the results of the latter studycited here, incorporating them into a broader framework that constitutes the novelty of this work. We found that (1) technological progress explains a large part of the increase in income inequality recorded in the United States over the last half-century. (2) Skill-biased technical change (SBTC) is partly endogenous and caused by increased schooling, as argued by Acemoglu, and partly exogenous. Indeed, a positive shock to the supply of skilled labor raises future productivity and increases, rather than reducing, the college wage premium, and, at the same time, also a non trivial part of wage inequality is explained by a technological shock orthogonal to the skilled labor supply shock.