Skill-biased technological change and wage inequality in developing countries

This paper theoretically examines how skill-biased technological change influences the skilled-unskilled wage inequality in developing countries. In the basic model, we find that in a two-sector economy with full employment, an increase in the magnitude of skill-biased technological change will expand the skilled-unskilled wage inequality if the labor's distributive share in the skilled sector is large enough relative to that in the unskilled sector. When we extend the basic model by taking different characteristics into consideration, we find that an increase in the magnitude of skill-biased technological change will conditionally in a way similar to that in the basic model or unconditionally widen the wage inequality.