Embedding Skill Bias: Technology, Institutions, and Inequality in Wages and Benefits

Is rising inequality an inevitable consequence of the transition to a knowledge-based economy? Departing from existing approaches in labor economics and comparative political economy, we develop an account of inequality in the knowledge economy that foregrounds the role of labor market institutions. We argue that collective bargaining institutions play a critical role in mediating the skill bias commonly associated with the diffusion of information and communications technologies (ICT), because they determine whether employers have the discretion to selectively reward strategically important high-skilled workers with greater wages and benefits. We then test our argument by carrying out cross-country analyses of both wage premia and non-wage benefits in the OECD countries. We find robust evidence in support of our theoretical propositions across a range of model specifications.