Supply and Demand in a Two-Sector Matching Model

Abstract

I examine the distributional consequences of technological change in a framework that nests Roy's (1951) and Becker's (1973) classical models: Workers self-select into two sectors and then match with heterogeneous firms within each sector. In this model, technological change can be decomposed into changes in (i) the degree to which sectors covet the same skill sets and (ii) the extent to which output varies with skill in each sector. By deriving monotone comparative statics results for each of these two types of changes, I am able to provide a comprehensive account of the distributional consequences of technological change.