1 Mujeeb Ullah, Matriculation Number: 173989 On the Relationship between Innovation and Wage Inequality: New Evidence from Canadian Cities Breau, Kogler and Bolton (2014) reflect the distribution of income and wages in the cities of Canada where the innovation ratio is high. Moreover they indicate that there is an imbalance in wages among the highly innovated cities. There are several reasons behind this because not only a single factor like city size manufacturing, and education etc is involved in this inequality therefore for this confirmation of they have taken the data of Canadian census of 1996, 2001 and 2006. They have point out different elements which could be a cause of their inequality and they also found the way of distribution the prosperity in the society for longstanding benefits. Innovation is the key component of economic growth and lead to the creation of new plans, jobs and production. Big cities are the hubs of innovation due to more education, Research, cluster and other many factors. But it is found that cities with more innovation have different giving out of wages and this tendency have also been observed in Canada as Canada is one of the organizations for economic cooperation development country (OECD 2008) who have the second largest outpouring imbalance of all (OECD) countries. In this article we will investigate the connection of innovation and wage inequality in a number of ways and will find the reasons and factor which causes these changes. Innovation causes variation in income because more qualified worker needed for dealing with latest technology and being reward more due to their high skill and learning while people with low skill and education paid less due to their poor understanding of the new technology so the inequality begin. Growing inequality has not only effect on the society but it will also lead the political instability. In theory there are certain channels which show the correlation of innovation and income inequality and one of the main arguments of the economist is Skilled –Biased Technological Change (STBC). According to this hypothesis the emerging of new technology especially computer and information communication technologies needs 2 highly educated and skilled persons to deal with these latest technology and machines. So they are paid highly while those people who have low technical skills and less education are paid less which leads to inequality caused by innovation. For empirical proofs of the positive relationship between innovation and wage inequality in the metropolitans cities of Canada a series of panel regression analysis have been conducted of 85 metropolitan Canadian cities for which data have been taken from two different data sources. All measures of inequality economic and socio demographic variable are taken from 20 percent of sample from Canada census for 1996, 2001, and 2006. And use geographical information system (GIS) to reconstruct 1996 and 2001 census metropolitan area (CMA) and census agglomeration (CA) boundaries to their 2006 geographic definition. And secondly patent data from UPTSO. By combining these variables in model and conducting different test and using different statistics coefficient such as Gini coefficient and theil index the positive relationship between innovation and income was found. Beside the Gini coefficient and Theil index other measure were also taken to cheek the relationship of innovation and wage inequality is Knowledge intensive business services (KIBS). And found that cities with high concentration to KIBS employment have more unequal distribution of earnings. Lee and Rodríguez-Pose (2013) also affirm the positive relationship of innovation and wage inequality in their paper in America and Europe although the reasons of the wage inequality and innovations are different in both regions but still innovation and wage inequality have positive relationship in both the regions. Both studies show that innovation and inequality in wage have a positive relationship. Large cities with more innovation have more wage inequality and the Advantages are receiving by only high skilled and more educated people and thus create an inequality. But if we continue our research agenda and pay more attention to the sources of inequality at the city level and find solution of this inequality this will increase the standard of the society overall and the locality will be assisted from the innovation as well instead of benefitting only a few innovators and hands. 3 Bibliography Breau S., Kogler D. and Kenyon Bolton (2014), On the Relationship Between Innovation and Wage Inequality: New Evidence from Canadian Cities. Economic Geography, 90, 351-373. Lee N. and Andre´s Rodríguez-Pose (2013), Innovation and spatial inequality in Europe and USA. Journal of Economic Geography, 13, 1-22.