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The Supply of Skilled Labour and Skill-Biased Technological Progress.

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Abstract

This paper presents a model in which the adoption of skill-biased or "unskilled-biased" technologies is endogenous. In this model of endogenous technology choice, an increase in the supply of skilled labour leads to a temporary fall in the skill premium, followed by an expanding gap between the wages of skilled and unskilled workers as technologies adjust towards the more skill-intensive mix appropriate for the greater skill of the workforce. The adjustment in the technology mix results in slower output growth along the transition path.

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