Human capital accumulation and transition to skilled employment

This paper assesses the impact of investment- and education-specific technical change on occupational transition and the skill premium in a model with human capital. In this framework, human capital augments labor productivity and also facilitates the transition to skilled employment. In line with empirical evidence, this setup predicts that an increase in the productivity of physical capital (investment-specific change) leads to very small increases in the relative supply of skilled workers and to significant and rising increases in the skill premium. Additionally, reforms that improve the productivity of resources used in education (education-specific change) reduce wage inequality and increase mobility