ABSTRACT
Skill-biased technological change represents a shift in the production of technological knowledge that favours high-skilled over low-skilled labour by increasing its relative productivity, and therefore its relative demand that exceeds the increase in the relative supply, thus increasing the skill premium. This chapter analyses the direction of technological knowledge in a dynamic setting where the scale effects are removed, by considering that the difficulty in conducting R&D is proportional to the size of the market measured by the stock of labour, which results in a 'permanent-effects-on-growth' specification. It implements MATLAB/Octave code to solve the skill-biased technological change model making use of Runge-Kutta (RK) methods. The family of RK methods retain the desirable feature of Taylor methods but with the advantage of not requiring explicit evaluations of the derivatives. The chapter presents numerical methods with memory and methods to tackle stiff initial value problems.
