This paper analyzes the role of wealth distribution in macroeconomics through investment in human capital. It is shown that in the presence of credit markets' imperfections and indivisibilities in investment in human capital, the initial distribution of wealth affects aggregate output and investment both in the short and in the long run, as there are multiple steady states. This paper therefore provides an additional explanation for the persistent differences in per-capita output across countries. Furthermore, the paper shows that crosscountry differences in macroeconomic adjustment to aggregate shocks can be attributed, among other factors, to differences in wealth and income distribution across countries. 1. See Kaldor (1956), Kuznets (1955) and a later survey by Cline (1975). 35 10. There are alternative ways to model the bequest motive, but it can be shown that they yield similar results. This issue is discussed in Section 5. 11. This assumption is not critical to any of the results of the paper. Removing it can even strengthen our results. This assumption though reflects, in a somewhat extreme way, the fact that individuals are usually more credit constrained than firms.

This paper analyzes a model of economic growth, with technological innovations that reduce labor requirements but raise capital requirements. The paper has two main results. The first is that such technological innovations are not everywhere adopted, but only in countries with high productivity. The second result is that technology adoption significantly amplifies differences in productivity between countries. This paper can, therefore, add to our understanding of large and persistent international differences in output per capita. The model also helps to explain other growth phenomena, like divergence or periods of rapid growth.

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This paper claims that technical progress induces early retirement of older workers. Technical progress erodes some existing technology specific human capital. Since older workers have shorter career horizons, there is smaller incentive for them or for their employers to invest in learning how to use the new technology. Consequently, they are more likely to stop working. Using individual data, we find support for this erosion effect, as early retirement is positively correlated to the sector's rate of technical progress. At the aggregate level, the effect of technical progress on labor supply of older workers is mixed. It falls in innovating sectors due to the above erosion effect, but it increases in other sectors due to higher wages. This is the wage effect. US time series aggregate data demonstrate that the overall effect of technical progress on aggregate labor force participation of the old is negative. Namely, the erosion effect dominates.JEL Specification: J24, J26, O15, O33