On Endogenous Growth, Wage Inequality and

This paper builds a general equilibrium model of endogenous growth outside the representative agent framework to show that when individuals are heterogenous, persistent inequality will be the result of economic growth. Individuals are assumed to be born with different abilities, which will lead to a steady state growth path of biased technical change towards individuals with a higher ability. The problem of inequality as a result of skill-biased technical change is partially solved by allowing for government intervention. Intervention is shown to solve the problem to such a degree that particular subsidies and taxes on labor income are efficient