Economic growth and economic development 707

Introduction to Modern Economic Growth how a “wage push shock” can first increase equilibrium unemployment, and then induce endogenous capital-biased technological change, which reduces the demand for employment, further increasing unemployment Finally, Exercise 15.28 shows how the relative supply of factors can be endogenized, so that the two-way causality between relative supplies and relative technology can be studied 15.8 Taking Stock This chapter introduced the basic models of directed technological change These approaches differ from the endogenous technological change models of the previous two chapters because they not only determine the rate of aggregate technological change, but also endogenize the direction and bias of technological change The bias of technological change is potentially important for the distributional consequences of the introduction of new technologies (i.e., who will be the losers and who will be the winners from technological progress?) Therefore, the bias of technological change will play an important role in our study of political economy of growth Equally important, models of directed technological change enable us to investigate a range of new questions These include the sources of skill-biased technological change over the past 100 years, the causes of acceleration in skill-biased technological change during more recent decades, the causes of unskilled-biased technological developments during the 19th century, the impact of international trade on the direction of technological change, the relationship between labor market institutions and the types of technologies that are developed and adopted, and last but not least, an investigation of why technological change in neoclassical-type models may be largely labor-augmenting We have seen that a relatively simple class of directed technological change models can shed light on all of these questions These models are quite tractable and allow closed-form solutions for equilibrium relative technologies and long-run growth rates Their implications for the empirical questions mentioned above stem from two important, and perhaps at first surprising, results, which we can refer to as weak equilibrium bias and strong equilibrium bias results The first states that under fairly weak assumptions an increase in the relative supply of a factor always 693