Human Capital Investment, Inequality and Economic Growth

41 Pages Posted: 12 Jan 2016 Last revised: 7 Mar 2021

See all articles by Kevin M. Murphy

Kevin M. Murphy

University of Chicago - Booth School of Business

Robert H. Topel

University of Chicago

Date Written: January 2016

Abstract

We treat rising inequality is an equilibrium outcome in which human capital investment fails to keep pace with rising demand for skills. Investment affects skill supply and prices on three margins: the type of human capital in which to invest; how much to acquire; and the intensity of use. The latter two represent the intensive margins of human capital acquisition and utilization. These choices are substitutes for the creation of new skilled workers, yet they are complementary with each other, magnifying inequality. When skill-biased technical change drives economic growth, greater inequality reduces growth.

Suggested Citation

Murphy, Kevin M. and Topel, Robert H., Human Capital Investment, Inequality and Economic Growth (January 2016). NBER Working Paper No. w21841, Available at SSRN: https://ssrn.com/abstract=2713545

Kevin M. Murphy (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Robert H. Topel

University of Chicago ( email )

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