Endogenous Growth, Skill-Biased Technical Change and Wage Inequality

In this contribution, we present an endogenous growth model which essentially extends the idea of the paper by Murphy, Riddell and Romer (1998). In that paper, the authors assume that technical progress leads to wage differentials between high-skilled workers and unskilled workers. As technical progress occurs, the relative marginal productivity of different input changes. Yet, if there is sufficient complementarity between skills and new technology the demand for more educated employees rises, too, which generates an increase in their wages relative to those of the unskilled workers.