Working Paper: NBER ID: w21841
Authors: Kevin M. Murphy; Robert H. Topel
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.
Keywords: Human Capital; Inequality; Economic Growth
JEL Codes: D2; D24; D31; D33; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rising inequality (D31) | economic growth (O49) |
| human capital investment (J24) | rising inequality (D31) |
| skill-biased technical change (SBTC) (J24) | demand for skilled labor (J24) |
| demand for skilled labor (J24) | rising inequality (D31) |
| greater inequality (I24) | employers substitute away from skilled labor (F66) |
| employers substitute away from skilled labor (F66) | lower growth rate of overall productivity (O49) |
| elasticity of substitution between skilled and unskilled labor > 1 (J24) | relative demand for skilled labor is price elastic (J24) |
| supply of skilled labor (J24) | human capital choices (J24) |
| human capital choices (J24) | abilities and resources (G53) |