Skill Polarization in Local Labour Markets under Share-Altering Technical Change

This paper considers the “share-altering†technical change hypothesis in a spatial general equilibrium model where individuals have different levels of skills. Building on a simple Cobb-Douglas production function, our model shows that the implementation of skill-biased technologies requires a sufficient proportion of highly educated individuals. Moreover, when technical progress is such to disproportionately replace middle-skill jobs, the local distribution of skill will exhibit “fat-tailsâ€, where the proportion of both highly skilled and low-skilled workers increases. These predictions are consistent with recent existing evidence.