DP1972 | Ability Biased Technological Transition, Wage Inequality and Growth

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This paper develops a growth model in which the endogenous evolution of technological progress and wage inequality is consistent with the observed pattern in the United States and several European economies in the last two centuries. The model accounts for: a) the rise in wage inequality between and within groups of skilled and unskilled workers, the increase in the average wage of skilled workers despite the increase in supply, and the decline in the average wage of unskilled workers, as observed during the 1980s and 1990s; b) the rise in wage inequality within groups and the decline in wage inequality between groups during the 1970s; c) the cyclical evolution of the wage differential between skilled and unskilled workers in the last centuries; and d) the productivity slowdown.