Up(and down)-skilling and directed technical change

Robert Kane and Ching-Yang Lin
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Robert Kane: International University of Japan
Ching-Yang Lin: International University of Japan

No EMS_2019_03, Working Papers from Research Institute, International University of Japan

Abstract: In this paper we develop a dynamic general equilibrium analog to the Roy model. Specifically, the economy is populated by heterogeneous agents who differ in ability and sort into skilled and unskilled jobs. Because skilled jobs use ability with greater intensity, high (low) ability workers sort into skilled (unskilled) jobs. As in other frameworks, this endogenous cutoff ability depends on the economy's technology and distribution of workers. In contrast to existing' assignment' models, we incorporate endogenous skill- or, more aptly, ability - biased technical change. We use our framework to engage in a number of comparative statics. Our model fs tractability allows us to contrast the short and long-run effects of changes to the economy's fundamentals. We show that, for commonly used distributions, a first order stochastic dominance (FOSD) increase in the ability distribution raises the ability requirement to work in skilled jobs in the short run. In contrast, the long-run cutoff ability may actually decline. More generally, the technological response always dampens the increase in ability requirements.

Keywords: endogenous growth; Roy; innovation; directed technical change; income inequality; overeducation (search for similar items in EconPapers)
JEL-codes: O00 O40 O41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2019-03
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