Technological progress, income inequality, and fertility

This paper constructs an overlapping-generations model with two different types of technology: modern, which can be accessed only by the skilled, and traditional, which can be accessed by the unskilled. The model described in this paper shows that a rise in the wage premium for skilled workers caused by skill-biased technological changes explains the following key stylized facts: with economic development, the fraction of skilled people increases, the fertility rate declines, and income inequality rises and then falls. The model also explains the observed gradual rises in income inequality in developed countries.