Reinterpret the endogenous growth model in this chapter as follows. Suppose that there are two groups of people in a country, the low-skilled workers and the high-skilled workers. The low-skilled workers have less human capital per person initially than do the high-skilled workers. In the economy as a whole, output is produced using efficiency units of labor, and total factor productivity is z, just as in the endogenous growth model in this chapter. Each individual in this economy accumulates human capital on their own, and each has one unit of time to split between human capital accumulation and work. However, now b = bh for the high-skilled, b = bl for the low-skilled, u = uh for the high-skilled, and u = ul for the low-skilled. In the United States, there has been an increase in the gap between the wages of high-skilled workers and low-skilled workers that has occurred over the last 30 years or so. Determine how this model can explain this observation, and discuss.
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