Education technologies, wages and technological progress

We analyze the worker's incentives to acquire skills under technological progress when the costs of education are endogenous and depend on the wage distribution. We show that the agent, S intergenerational elasticity of substitution plays then a relevant role in determining how incentives and the long-run wage distribution react to technological progress. Moreover, whenever poverty traps of unskilled workers exist, higher rates of technological progress can even decrease the incentives of low-skill workers to acquire skills. We also analyze the effects of educational subsidies. In contrast with previous analytical findings, we obtain that subsidies always decrease the long-run skill premium. Finally, we study the efficiency of the resulting competitive equilibria. (c) 2004 Published by Elsevier B.V.