Introduction to Modern Economic Growth change The rest of the chapter presents the basic models of directed technological change and shows a few of their applications 15.1 Importance of Biased Technological Change To see the potential importance of the biased technological change, let us first review a number of examples: (1) Perhaps the most important example of biased technological change is the so-called skill-biased technological change, which has played an important role in the analysis of recent labor market developments and changes in the wage structure Figure 15.1 plots a measure of the relative supply of skills (defined as the number of college equivalent workers divided by noncollege equivalents) and a measure of the return to skills, the college premium It shows that over the past 60 years, the U.S relative supply of skills has increased rapidly, but there has been no tendency for the returns to college to fall in the face of this large increase in supply–on the contrary, there has been an increase in the college premium over this time period The standard explanation for this pattern is that new technologies over the post-war period have been skill biased In fact, at some level this has to be so; if skilled and unskilled workers are imperfect substitutes, an increase in the relative supply of skills, without technological change, will necessarily reduce the skill premium The figure also shows that beginning in the late 1960s, the relative supply of skills increased much more rapidly than before, and the skill premium increased very rapidly beginning precisely in the late 1970s The standard explanation for this increase is an acceleration in the skill bias of technical change that happens to be coincidental with the significant changes in the relative supply of skills An obvious question is why technological changes have been skill biased over the past 60 years or even 100 years? Relatedly, why does it appear that skill-biased technological change accelerated starting in the 1970s, precisely when the supply of skills increased rapidly? While some economists are 656