​Economics Seminar | Skill Premium, Human Capital and Industrial Dynamics

Motivated by several stylized facts about skill premium and industrial dynamics, we develop an endogenous growth model with infinite industries that are heterogeneous in both capital intensities and skill intensities. Closed-form solutions are obtained to fully characterize the endogenous dynamic changes of factor endowment structure, industrial composition, life-cycle pattern of each industry and the skill premium along the balanced growth path. We highlight that optimal human capital investment should be synchronized with physical capital investment and that skill premium can be better understood in the context of industrial upgrading, which has been largely ignored in the existing macro literature.