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Increasing skill premium and skill supply - steady state effects or transition?

Abstract : I challenge the existing literature that claims that strongly biased technology is necessary to observe a simultaneous increases in the skill supply and the skill premium. I highlight the importance of the joint determination of the direction of technical change and skill formation, as there is a positive feedback between them. Technological progress is driven by profit oriented R&D firms, where profits are increasing in the amount of labour that is able to use these technologies. Therefore, when the supply of high-skilled labour increases, technology endogenously becomes more skill-biased. A more skill-biased technology leads to a higher skill premium, which increases the incentives to acquire education, and the supply of high-skilled labour rises. During the transition to the steady state, both quantities increase simultaneously. I map the dependence of the transition path of the economy on the initial skill supply and relative technology between the high- and the low-skilled sector. I find that, contrary to the previous literature, the skill premium and the skill supply can increase jointly even if the bias of technology is weak.
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https://hal-sciencespo.archives-ouvertes.fr/hal-00972941
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Submitted on : Thursday, April 3, 2014 - 8:09:51 PM
Last modification on : Monday, March 21, 2022 - 2:50:38 PM
Long-term archiving on: : Thursday, July 3, 2014 - 8:05:50 PM

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Zsofia Barany. Increasing skill premium and skill supply - steady state effects or transition?. 2011. ⟨hal-00972941⟩

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