Linear Synthesis of Skill Distribution

Abstract

This paper provides a method for linearly combining skill classes so that the number of classes required to describe a skill distribution is minimized. The principal analytical device is that of distinguishing between skill classes and the characteristics of persons in a class. The distinction suggests that skill distributions may have redundant classes and, if so, the wage of laborers in the redundant classes will be linear combinations of wages in other classes. On this premise, the structure of wages by years of school completed is examined across states, showing that for the eight Census schooling classes, wages in three (1-4, 12, and 16 or more years of schooling) account for 99+ percent of the variation in the five remaining. Based on this evidence, it is argued that the schooling distribution can be approximated using three classes only.