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SKILL POLARIZATION IN LOCAL LABOR MARKETS UNDER SHARE-ALTERING TECHNICAL CHANGE

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  • We thank participants in the 57th Annual North American Meeting of the RSAI, November 2010, Denver, 51st European Congress of the RSAI, September 2011, Barcelona, and 2nd European Meeting of the Urban Economics Association, August 2012, Bratislava for comments on earlier versions of this paper. We are particularly grateful to three referees and JRS co-editor Steven Brakman for their precious remarks. The usual disclaimers apply.

ABSTRACT

This paper considers the “share-altering” technical change hypothesis in a spatial general equilibrium model where individuals have different levels of skills. Building on a simple Cobb-Douglas production function, our model shows that the implementation of skill-biased technologies requires a sufficient proportion of highly educated individuals. Moreover, when technical progress disproportionately replaces middle-skill jobs, the local distribution of skills will exhibit “fat-tails,” where the proportion of both highly skilled and low-skilled workers increases. These and several other predictions of the model are consistent with recent existing evidence, and avoid some major criticism against the “canonical” CES framework.

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