Technology, entrepreneurship, and inequality

Alfonso Gambardella, Sant'Anna School of Advanced Studies, Pisa, Italy

This paper links the rise of new industries populated by skill-intensive companies with
the divergence in labour incomes between skills. Our model explains inequality by the
fact that as the skilled workers move towards new Silicon-Valley type firms, the
reduced complementarity between skilled and unskilled workers in the traditional
manufacturing sectors lessens the productivity of the latter. Knowledge externalities in
the modern sector produce two equilibria in which either the modern sector dominates
(and inequality between skills is high), or manufacturing dominates (inequality is low).

Date: 08 April-00 0000