Magalhaes, M. and C. Hellström
Journal of Macroeconomics – 37, (2013) 299-313

Keywords: Skill-biased technical change, Heterogeneous agents, Inequality

Abstract: We develop a dynamic general-equilibrium framework in which growth is driven by skill-biased technology diffusion. The model incorporates leisure–labor decisions and human capital accumulation through education. We are able to reproduce the trends in income inequality and labor and skills supplies observed in the United States between 1969 and 1996. The paper also provides an explanation for why more individuals invest in human capital when the investment premium is going down, and why the skill-premium goes up when the skills supply is increasing.