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Research

Human Capital, Industrial Dynamics and Skill Premium

2019-12-12

Content introduction:

No. E2019009

Human Capital, Industrial Dynamics and Skill Premium

Yong Wang, Xuemin Tang

 

Abstract:

Motivated by several stylized facts about skill premium and industrial dynamics, we develop an endogenous growth model with infinite industries that are heterogeneous in both capital intensities and skill intensities. Closed-form solutions are obtained to fully characterize the endogenous dynamic changes of factor endowment structure, industrial composition, life-cycle pattern of each industry and the skill premium along the whole growth path. We highlight that optimal human capital investment should be stage dependent and match the skill demand from the endogenously switching industrial structures and that the aggregate skill premium and its dynamics are endogenously determined in the process of industrial dynamics at the disaggregated level. Our model features endogenous structural differences across different stages of development, which is essentially ignored in the existing pertinent macro literature.

 

Key Words:

Human Capital; Industrial Dynamics, Skill Premium, Structural Change

 

The series of New Structural Economics Working Papers aims to encourage academic scholars and students from all over the world to conduct academic research in the field of new structural economics. Excellent papers are selected irregularly and are offered academic suggestions and recommendation, but the published working papers are not intended to represent official communication from INSE.

The Present Paper was approved by the NSE A0 Growth Group.