HOW POWERFUL ARE NETWORK EFFECTS? A SKILL-BIASED TECHNOLOGICAL CHANGE APPROACH

Oscar Afonso and Manuela Magalhães

Macroeconomic Dynamics, 2020, vol. 24, issue 4, 882-919

Abstract: Even for the standard skill-biased technological change (SBTC) literature, the generic rise in the skill premium in the face of the relative increase in skilled workers since the 1980s seems a little puzzling. We develop a general equilibrium SBTC growth model that allows the dominance of either the price channel or the market-size channel mechanism through which network spillovers affect the technological-knowledge bias and, thus, the paths of intra-country wage inequality. The proposed mechanisms can accommodate facts not explained by the earlier literature.

Date: 2020
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