Romer Meets Heterogeneous Workers In An Endogenous Growth Model

Abstract

This paper extends Romer's (1990) endogenous growth model by incorporating the heterogeneity of skills among workers. Based on this heterogeneous characteristic, our model has an endogenous labor allocation mechanism determined by the shape of the skill distribution of the workers. Workers are divided between the research and production sectors according to the demand and supply conditions of the economy for their specific skills. We also show that the long-run growth rate of the economy can be characterized by the allocation mechanism.