Skill-biased technological change, endogenous labor supply and growth: A model and calibration to Poland and the US

In this paper skill-biased technological change is linked with endogenous labor supply in a growth model. Elastic labor supply allows us to explain how the observed increasing unemployment of unskilled workers is caused by skill-biased technological change. Using empirical data on wages and education, we construct the time series for the skill-biased technology for Poland and the US. The empirical relevance of the model is tested by calibrating it to empirical data for Poland over the period 1996–2006 and for the US over the period 1992–2008. Our numerical analysis shows that if the skill-biased technological change is not followed by the growth of total factor productivity, then output, physical capital stock and consumption decline. With only two necessary inputs, namely the share of skilled workers in total population and the technology adopted by firms, this model allows to simulate the future behavior of the labor market.

► We link skill-biased technological change with endogenous labor supply in a growth model.
► The share of skilled workers is captured in the production function.
► We calculate time series for SBTC in Poland and the US.
► If SBTC is not followed by TFP growth, then consumption and capital stock decline.