Abstract

This paper examines how skill-biased growth can generate economic fragmentation (income dispar- ities) that give rise to social fragmentation (the adoption of increasingly incompatible social identities and values), which generate political fragmentation (the adoption of increasingly incompatible eco- nomic policies). Our model of social fragmentation focuses on three values-driven identities: individ- ualism (focused on status concerns), communitarianism (focused on the benefits of social aliations), and multi-alatedness (encompassing both individualistic and communitarian objectives). Our anal- ysis shows how the high-, middle- and low-skilled people are drawn to individualistic, multi-aliated and communitarian objectives, respectively. We show how skill-biased growth leads to an expansion of the individualistic and communitarian groups, at the expense of the tolerant multi-aliates. Con- sequently, there is a narrowing of the moral foundations driving economic policy. We examine the conditions under which these developments increase size of the political constituency for protectionist- nationalist policies (which destroy productivity, compress the income distribution and promote the benefits of social aliation).

​