Human Capital Investment, Inequality and Economic Growth
We treat rising inequality is an equilibrium outcome in which human capital investment fails to keep pace with rising demand for skills. Investment affects skill supply and prices on three margins: the type of human capital in which to invest; how much to acquire; and the intensity of use. The latter two represent the intensive margins of human capital acquisition and utilization. These choices are substitutes for the creation of new skilled workers, yet they are complementary with each other, magnifying inequality. When skill-biased technical change drives economic growth, greater inequality reduces growth.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Research support from the Booth School of Business, University of Chicago and the George J. Stigler Center for the Study of the Economy and the State is gratefully acknowledged.
Kevin M. Murphy & Robert H. Topel, 2016. "Human Capital Investment, Inequality, and Economic Growth," Journal of Labor Economics, vol 34(S2), pages S99-S127.