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Human Capital Investment, Inequality, and Economic Growth

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  • Kevin M. Murphy
  • Robert H. Topel

Abstract

We treat rising inequality as 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.

Suggested Citation

  • Kevin M. Murphy & Robert H. Topel, 2016. "Human Capital Investment, Inequality, and Economic Growth," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 99-127.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/683779
    DOI: 10.1086/683779
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    References listed on IDEAS

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