Technology, Skill, and Long Run Growth

October 2016
Nancy L. Stokey

This paper develops a model in which heterogeneous firms invest in technology to increase their profits, and heterogeneous workers invest in human capital to increase their earnings. Production functions are log-supermodular in technology and human capital, so the competitive equilibrium features positively assortative matching between firms and workers. Continued investment in technology is profitable only because human capital is growing, and continued investment in human capital is worthwhile only because technology is growing. Both investment technologies have stochastic components and the balanced growth path has stationary, nondegenerate distributions of technology and human capital, with both growing at a common, constant rate.