Liquidity Constraints in the Vintage Human Capital Model

We analyse liquidity constraints in the Vintage Human Capital Model of Chari and Hopenhayn (1991). Comparing two economies with di¤ering degrees of liquidity constraints, the more constrained economy exhibits slower technology di¤usion, uses a larger range of technologies and displays more lifetime income inequality. Allowing for skill transfers between the two economies gives rise to technique cycles, whereby the less constrained economy is sorted into high lifetime income activities which use new technologies, and operate larger production units. In a two good world, where production in the second goods displays less complementarity between skilled and unskilled workers, the more constrained economy has a comparative advantage in the second good. The distribution of gains from skilled worker mobility and trade depend on the relative size of the more constrained economy. JEL Classi...cation J24; O3; O1; F1; D9