Endogenous Income Distribution with Product Obsolescence

Abstract

Wage inequality in U. S. and UK has increased over the past 25 years. Paradoxically, skilled labor supply has also increased in both countries. This paper develops the dynamic general equilibrium model of product innovation with product obsolescence. We develop a model to provide an explanation of inequality phenomena between skilled and unskilled labor by the channel of innovation and market structure. This paper builds on the dynamic general equilibrium model of product innovation and incorporates overhead cost of the production of intermediate goods to capture endogenous growth rate of innovation, hazard rate, product life cycle and inequality.wage inequality, skilled and unskilled labor, product innovation, general equilibrium