Overhead Labour and Skill-Biased Technological Change : The Role of Product Diversification

This paper tries to explain why a certain type of technology is skill-biased. In contrast with existing literature, this paper regards skilled workers as overhead labour, and presents a model wherein skilled workers constitute a fixed input, required to produce a new product. The demand for skill increases with product variety, and information technology is skill-biased because it raises product variety by lowering the fixed cost of product creation. However, skill-biased change does not necessarily raise measured productivity because product diversification reallocates resources into fixed inputs, which is consistent with the historical fact that skill-biased change did not always accompany productivity growth