Skill Polarization in Local Labor Markets Under Share‐Altering Technical Change
24 Pages Posted: 4 Mar 2014
Date Written: March 2014
This paper considers the “share‐altering” technical change hypothesis in a spatial general equilibrium model where individuals have different levels of skills. Building on a simple Cobb‐Douglas production function, our model shows that the implementation of skill‐biased technologies requires a sufficient proportion of highly educated individuals. Moreover, when technical progress disproportionately replaces middle‐skill jobs, the local distribution of skills will exhibit “fat‐tails,” where the proportion of both highly skilled and low‐skilled workers increases. These and several other predictions of the model are consistent with recent existing evidence, and avoid some major criticism against the “canonical” CES framework.
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