Abstract:In this paper we present a tractable general equilibrium overlapping-generations model of human capital accumulation which is consistent with several features of the evolution of the U.S. wage distrib...In this paper we present a tractable general equilibrium overlapping-generations model of human capital accumulation which is consistent with several features of the evolution of the U.S. wage distribution from 1970 to 2000. The key feature of the model, and the only source of heterogeneity, is that individuals differ in their ability to accumulate human capital. To highlight the working of the model, we abstract from all kinds of idiosyncratic uncertainty, and thus, wage inequality results only from differences in human capital accumulation. We examine the response of this model to skill-biased technical change (SBTC) both theoretically and quantitatively. First, we theoretically show that in response to SBTC, the model generates behavior consistent with the U.S. data including (i) a rise in total wage inequality, (ii) an initial fall in the education (skill) premium followed by a strong recovery, leading to a higher premium in the long-run, (iii) the fact that most of this fall and rise takes place among younger workers, (iv) a rise in within-group inequality, (v) an increase in educational attainment, (vi) stagnation in median wage growth (and a slowdown in aggregate labor productivity), and (vii) a rise in consumption inequality that is much smallerRead More
Publication Year: 2006
Publication Date: 2006-12-03
Language: en
Type: preprint
Access and Citation
Cited By Count: 2
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot