Implications of the Capital-Embodiment Revolution for Directed R&D and Wage Inequality
FRB Richmond Economic Quarterly, Vol. 89, No. 4, Fall 2003, pp. 25-50
26 Pages Posted: 5 Dec 2012
Date Written: 2003
The skill premium — the wage of skilled labor relative to the wage of unskilled labor — has increased substantially in the United States since the 1970s. The higher skill premium has been attributed to skill-biased factor-specific technical change or to capital accumulation when skilled labor is relatively more complementary to capital than is unskilled labor. The authors describe an economic mechanism through which factor-specific technical change and capital accumulation respond to changes in the rate of capital-embodied technical change, and they trace out how accelerated capital-embodied technical change increases the skill premium in the medium and long run.
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