The determinants of long-run inequality

I explore the effect of skill-biased technological change on long-run inequality by building a model where the supply of skilled and unskilled workers, the cost of education, and credit rationing are endogenous. In the model, the existence of unequal steady states does not depend on the degree of technological skill bias, but on the credit market, the cost of education, and the growth rate of the economy. However, by building an appropriate measure of inequality, I show that when unequal steady states exist, economies with a higher technological skill bias have a greater long-run inequality. Therefore, the impact of skill-biased technological change on inequality may be permanent.