Population growth and the wage skill premium

We develop a general equilibrium directed technical change model with growth of skilled and unskilled labour in order to analyse the effect of heterogeneous population growth on the skill premium. Heterogeneous population growth generates a non-monotonic and non-linear relationship between the skill premium and the demographic variables, which may help explain different conflicting patterns of the skill premium across history and amongst countries. In a quantitative exercise on the US economy for almost all the 20th century, we show that the model can replicate the observed data on skill premium. We extend the quantitative exercise to consider that the R&D productivity depends on population ageing and this improved the fit of the replication of the skill-premium pattern.