We document for a broad panel of advanced economies that increases in GDP per capita are associated with a shift in the composition of value added to sectors that are intensive in high-skill labor. It follows that further development in these economies leads to an increase in the relative demand for skilled labor. We develop a two-sector model of this process and use it to assess the contributi...

There have been striking postwar changes in the supply and price of skilled labor relative to unskilled labor. The relative quantity of skilled labor has increased substantially, and the skill premium, which is the wage of skilled labor relative to unskilled labor, has grown signiicantly since 1980. Many studies have found that it is diicult to account for the increase in the skill premium on t...

This paper contributes to the search theory of unemployment by endogenously generating matching functions for skilled and unskilled workers from a wage-posting game. The model is capable of producing a positive skill premium and a positive wage di®erential among homogeneous unskilled workers. The skill premium arises from a skill-biased technology; the wage di®erential among unskilled workers s...

This paper asks if "higher education as a signal" helps explaining the comovements between college enrollment rate and skill premium for younger workers in the US from 1973 to 2005. In my model a continuum of agents, heterogeneous in talent and initial wealth, make schooling and working decisions: work now or take up college first? When college is very expensive only the wealthy can afford it, ...

Empirical studies report a marked dispersion in skill-premium changes across economies over the past few decades. Early studies successfully replicate the increases in skill premiums in many economies, while some other cases with a decline in the skill premium are yet to be explained. To this end, we develop a two-sector (i.e., manufacturing and nonmanufacturing) general equilibrium model with ...

This paper provides a theory of wage inequality that hinges on entrepreneurship. The theory is motivated by new empirical findings. Among them, I document that in countries where barriers to entrepreneurship are high, wage inequality is low. As noted in the literature, differences in wage inequality across countries are, to a great extent, determined by differences in the skill premium, defined...

The paper quantitatively evaluates the interaction between capital-skill complementarity and endogenous low-, medium-, and high-skilled labour supply in generating wage inequality, using a dynamic computable general equilibrium (CGE) model of the Auerbach-Kotliko¤ (1987) type. The counterfactual analysis conducted shows that the German skill premium de…ned by the 9 to 1 decile limit of earnings...