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
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