Interaction between Endogenous Human Capital and Technological Change.

This paper examines how interaction between endogenous human capital accumulation and technological change affects relative wages and economic growth. Private incentives to invest in human capital finance and employment of skilled labor in the education sector, while non-rival technology a by-product of the education process. The absorption of new technologies into production is skill intensive, creates skill-biased labor demand, and increases the relative wage of skilled to unskilled labor. In contrast to recent models of endogenous growth, higher rates of technological change and growth may be accompanied by a higher relative wage but lower relative supply of skilled labor. Thus the model provides a theoretical foundation for the empirically observed relation between technological change and relative demand, supply and wages of skilled labor. Copyright 1996 by The Review of Economic Studies Limited.