Endogenous technological change and wage inequality

Although microeconomic studies find a positive relationship between R&D and skill premia, much of the recent rise in U.S. wage inequality was accompan ied by slowing labor-productivity growth and relatively slow introduction o f new technologies. These conflicting observations are consistent with the effects of a skewed distribution of "absorptive capacities"-the rate at whi ch technology-specific skills can be acquired-in a model of endogenous tech nological change. The framework is used to assess whether the productivity slowdown and the rise in wage inequality can be jointly accounted for by th e contemporaneous decline in the growth rate of labor quality.