Interaction between Endogenous Human Capital and Technological Change

Abstract

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 the employment of skilled labour in the education sector, while non-rival technology is a by-product of the education process. The absorption of new technologies into production is skill intensive, creates skill-biased labour demand, and increases the relative wage of skilled to unskilled labour. In contrast to recent models of endogenous growth, higher rates of technological change and growth may be accompaniedb y a higherr elativew age but lower relative supply of skilled labour. Thus the model provides a theoretical foundation for the empirically observed relation between technological change and relative demand, supply and wages of skilled labour.