Does skill-biased technological change necessarily cause increase in wage inequality?

Abstract

The 1990s consensus among labor economists is that skill-biased technological change labeled the wide use of computers and IT since late 1970s, lifted up the demand for skilled workers so as to increase the college premium, i.e., wage inequality between different educated groups. However, 1990s consensus is not consistent with the fact that college premium declined in some decades. Challenging the pessimistic 1990s consensus, this paper develops a long run evolution model that captures the influence of skill-biased technological change on the wage inequality. The proposed dynamical model, in which both of the technological change and wage inequality are endogenous, indicates that considering the education efficiency, skill-biased technological change would increase the wage inequality in the short run, while the wage inequality would decline finally in the long term, if the efficiency of education system is at an appropriate level.