Organization and Inequality in a Knowledge Economy

Innovation and Economic Growth

Article Snapshot


Luis Garicano and Esteban Rossi-Hansberg


NBER Working Paper No. W11458, July 2005


This paper looks at the theory of equality in a knowledge economy.

Policy Relevance

As the costs of communications and information storage and retrieval change, organizations change. Inequality between types of workers can increase or decrease.

Main Points

  • In an economy where knowledge is needed to work, each person chooses how much knowledge to acquire and produce.

  • In organizations, people with poor skills rely on others, learning less than they would on their own. People with good skills join teams, learning more.

  • Organizations will increase inequality of incomes.

  • If communications are cheaper, organizations become more centralized.
    • Teams use high-skill workers more.
    • Low-skill workers refer to others more, increasing inequality.

  • If data storage and searching are cheaper, decentralization increases, and self-employment increases.

  • This theory explains some changes in the wage structure of the United States over the past 30 years.

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