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

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  • Zsofia Barany

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Zsofia Barany, 2011. "Increasing skill premium and skill supply - steady state effects or transition?," Working Papers hal-00972941, HAL.
  • Handle: RePEc:hal:wpaper:hal-00972941
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-00972941
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    Keywords

    Education; endogenous technology; skill premium;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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