SKILL POLARIZATION IN LOCAL LABOR MARKETS UNDER SHARE-ALTERING TECHNICAL CHANGE.

ABSTRACT This paper considers the 'share-altering' technical change hypothesis in a spatial general equilibrium model where individuals have different levels of skills. Building on a simple Cobb-Douglas production function, our model shows that the implementation of skill-biased technologies requires a sufficient proportion of highly educated individuals. Moreover, when technical progress disproportionately replaces middle-skill jobs, the local distribution of skills will exhibit 'fat-tails,' where the proportion of both highly skilled and low-skilled workers increases. These and several other predictions of the model are consistent with recent existing evidence, and avoid some major criticism against the 'canonical' CES framework. [ABSTRACT FROM AUTHOR]