Inequality and the Organization of Knowledge

Since the seminal work of Katz and Murphy (1992), the study of wage inequalityhas taken as its starting point a neoclassical CES production function using as inputscapital and low and high skill labor. This approach assumes that the organization ofproduction is fixed and determined by a particular specification of technology, andignores both the source of the interaction between workers, and the organizationalaspects of this interaction. These shortcomings are particularly important in the lightof growing empirical evidence that points, first, to the importance of decreases in thecost of processing and communicating information and, second, to the complementaritybetween organizational change and adjustments in the distribution of wages (e.g.Bresnahan, Brynjolfsson and Hitt (2002)). This paper argues that theories that seekto guide empirical research on these areas must put knowledge and information atthe center of the analysis of organizations and link the organizational structure withaggregate variables via equilibrium frameworks.[...]