Economic growth and economic development 670

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
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