The Internal Mechanism of How New Infrastructure Affects Labor's Wage and Wage Inequality
This paper explores the underlying mechanisms of how new infrastructure affects labor's wage and wage inequality,with a particular focus on the product bias of new infrastruc-ture.The paper starts by constructing a general equilibrium model that includes skilled intermedi-ate goods,unskilled intermediate goods,and final products.Skilled intermediate goods are pro-duced using skilled labor and capital,while unskilled intermediate goods are produced using un-skilled labor and capital.Infrastructure plays a role by enhancing production efficiency.The prod-uct bias of new infrastructure is reflected in its ability to significantly improve the production effi-ciency of skilled intermediate goods,reflecting the economic reality that new infrastructure can enhance the efficiency of digital products.Additionally,this paper takes into account different production conditions based on a generalized production function.The impact channels through which new infrastructure influences labor wages can be divided into direct effect and indirect effect.The direct effect is generated by the direct improvement in production efficiency due to new infrastructure,which simultaneously increases both types of la-bor wages.Considering the skilled product bias of new infrastructure,the direct effect dispropor-tionately increases the marginal productivity of skilled labor,thereby widening the wage gap.The indirect effect arises from factor reallocation.Due to the product bias,new infrastructure changes the relative wages between different types of labor,leading to relative price changes of intermediate goods.This in turn alters the input proportions of intermediate goods in the produc-tion of final products,causing inter-sector capital flows and factor input adjustments.This factor reallocation also has an impact on factor prices,depending on the substitutability between capital and different types of labor,as well as the substitutability between skilled and unskilled interme-diate goods.The results indicate that when the substitutability between capital and skilled labor is relatively low compared to the substitutability between intermediate goods,the indirect effect of new infrastructure has a positive impact on skilled wages.Similarly,when the substitutability between capital and unskilled labor is relatively high compared to the substitutability between in-termediate goods,the indirect effect of new infrastructure has a positive impact on unskilled wa-ges.This result suggests that,given a substitutability parameter between intermediate goods,if capital is less substitutable for skilled labor while unskilled labor is more substitutable for capital,the factor reallocation induced by new infrastructure can simultaneously increase both types of wa-ges,providing a foundation for achieving"inclusive"growth of labor wages.The results also show that changes in the wage gap depend solely on the substitutability between intermediate goods.If there is a large elasticity of substitution between the two,new infrastructure with a skill product bias will widen the wage gap,while the opposite will narrow down the wage gap.Finally,this paper conducts a numerical analysis in the context of China's actual situation.Based on the estimated results from the existing literature,the relationships between substitution elasticities in the overall economy of China generally satisfy the condition where the substitutabili-ty between capital and unskilled labor is greater than the substitutability between intermediate goods,which is greater than the substitutability between capital and skilled labor.This suggests that under the current economic conditions,new infrastructure can bring about"inclusive"growth in labor wages,although its skill bias may widen the wage gap.
new infrastructureproduct biasskilled wageunskilled wagewage inequality
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