Essays in Inequality and Heterogeneity

Abstract

Recent trends in both developed and developing economies show increasing inequality in income and wealth. Technological change is reshaping the nature of work for many, as automation, offshoring and other practices are adopted by firms around the globe. These changes to the type of jobs workers have are linked to changes in wages and labor earnings, in particular the adoption of new (worker-replacing) technologies has been linked to decreases in wages and increases in income inequality. Simultaneously, the trend towards higher inequality has sparked questions about the desirability (optimality) of inequality and whether governments should use the tools at their disposal to try to curb these trends. My dissertation contributes to the discussion on these topics in two distinct ways. The first two chapters deal with the effects of technological change in the nature of occupations, and its effects for wage inequality, while the third chapter deals with the implications of fiscal policy (particularly capital income and wealth taxation) in the face of wealth inequality caused by differences in the rate of return across individuals. The first part of my dissertation develops a new theory of how the specific tasks carried out by workers are determined, providing a flexible framework in which to study the implications for workers of automation, offshoring, skill-biased technological change among others. I use this framework along with U.S. occupational data to study the recent adoption of automation and its effects on the wage structure. The final chapter shows how the determinants of inequality matter for determining the optimal policy in the face of inequality. In the presence of rate of return heterogeneity wealth taxes dominate capital income taxes. Relative to capital income taxes, wealth taxes benefit the individuals who are more productive, increasing the allocative efficiency in the economy, in turn leading to potentially large welfare gains despite increases in inequality.