3.6. Summary

To recap, the canonical model provides a parsimonious framework for thinking about the skill premium and the determinants of the earnings distribution. Its simplicity leads to several sharp results, including:

1. Changes in the wage structure are linked to changes in factor-augmenting technologies and relative supplies.

2. Overall inequality rises in tandem with the skill premium (as within group inequality is either invariant when the skill premium changes or co-moves with the skill premium).

3. The economy-wide average wage and the real wage of each skill group should increase over time as a result of technological progress, particularly if the supply of high skill labor is increasing.61

4. The rate and direction of technological ...

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