Catching-up, structural transformation, and inequality: industry-level evidence from Asia

This article empirically investigates the effect of structural transformation on wage inequality in Asia, using industry-level data for three skill groups of workers. While structural transformation, associated with technological progress, productivity catching-up, and capital deepening, has contributed to Asia's sustained growth, its effect on income inequality remains uncertain. Our results show that the process of economic transformation has exacerbated inequality in the region by increasing the relative share of high-skilled workers in total compensation. This is mainly due to a shift toward more productive-and more intensive in the use of skilled labor-activities both within and between industries. However, we also find that policy responses, especially investments in education, mitigate the increase in inequality.