This paper utilizes the self-employed to analyze the observed increase in the educational earnings premium in the 1980's. The paper compares the predictions of the signaling and human capital models in response to an exogenous demand shock such as a skill-biased technological change. Since the...

We construct a two sector general equilibrium model in which one sector produces a homogeneous good and the other sector produces a vertically differentiated good. We demonstrate that uniform (across sectors) and (Hicks) neutral technological change can cause an increase in the skill premium.