Learning for Innovation and the Skill Premium

Abstract

The “computer revolution” took very long to pay off in productivity growth in the computer-using sectors. The relative wage of skilled workers, however, has risen sharply from the early days of the “computer revolution” onward. As skilled workers’ wages reflect their productivity, the two observations together pose a puzzle.

This paper provides a micro-based explanation for the long diffusion period of the “computer revolution”. The general equilibrium model of growth zooms in on the research process and provides an explanation for sluggish growth with booming relative wages of the skilled. Technological progress in firms is driven by research aimed at improving the production technology (innovation) and by assimilation of ideas or principles present outside the firm (learning). A new General Purpose Technology (GPT) like the “computer revolution” generates an initial slowdown in economic growth and an increase in the skill premium.