Introduction to Modern Economic GrowthSkill premium Long-run relative demand for skills Exogenous Shift in Relative Supply Initial premium Short-run Response Long-run premium Figure 15.5
Trang 1Introduction to Modern Economic Growth
Skill premium
Long-run relative demand for skills
Exogenous Shift in Relative Supply
Initial premium
Short-run Response Long-run premium
Figure 15.5 Dynamics of the skill premium in response to an
increase in the relative supply of skills, with a downward-sloping
endogenous-technology relative demand curve
when σ > 2 In the context of substitution between skilled and unskilled work-ers, an elasticity of substitution much higher than 2 is unlikely Most estimates put the elasticity of substitution between 1.4 and 2 One would like to understand whether σ > 2 is a feature of the specific model discussed here and how differ-ent assumptions about the technology of production or the innovation possibilities frontier affect this result This issue will be discussed in Section 15.4 Second, we would like to understand the relationship between the market size effect and the scale effects, in particular, whether the results on induced technological change are
an artifact of the scale effect (which many economists do not view as an attractive feature of endogenous technological change models) Section 15.5 shows that this
is not the case and exactly the same results apply when scale effects are removed Third, we would like to apply these ideas to investigate whether there are reasons for technological change to be endogenously labor-augmenting in the neoclassical growth model This will be investigated in Section 15.6 Finally, it is also useful to
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