Skill-Biased Technological Change in an Endogenous Growth Model

When new technologies are introduced in the production process or when technological change is incorporated in an economic model, it is agreed upon that this reduces the demand for low-skilled labour relative to the demand for high-skilled labour. In general the rationale for this argument is that high-skilled workers and capital are complements, whereas high-skilled labour and low-skilled labour are substitutes, e.g. many routine assembly activities are replaced. In addition, it is acknowledged that high-skilled workers adapt more easily to changing technologies than their low-skilled colleagues. Finally, the computer revolution increases the productivity of high-skilled workers more than the productivity of low-skilled workers, leading to wage dispersion. This paper develops a model of endogenous growth with heterogenous labour, which leads to skill-biased technological change and wage dispersion. In order to do so, we discuss the changing skills profile in terms of a dynamic model.