Globalization and Wage Polarization

In the 1980s and 1990s, the US labour market experiences a remarkable polarization along with fast technological catch-up, as Europe and Japan drastically improve their global innovation performance. Is foreign technological convergence an important source of employment and wage polarization? To answer these questions, we set up a Schumpeterian growth model with two asymmetric countries, heterogeneous workers, endogenous skill formation and occupational choice. A calibrated version of the model shows that foreign technological catching-up accounts for a non-negligible part of polarization in the US. Moreover, the model delivers predictions on the US wealth to income ratio consistent with empirical evidence.