Abstract
AbstractUsing a broad panel of advanced economies, we document that increases in GDP per capita are associated with a systematic shift in the composition of value added to sectors that are intensive in high-skill labour, a process we label as skill-biased structural change. It follows that further development in these economies leads to an increase in the relative demand for skilled labour. We develop a quantitative two-sector model of this process as a laboratory to assess the sources of the rise of the skill premium in the U.S. and a set of ten other advanced economies, over the period 1977 to 2005. For the U.S., we find that the sector-specific skill neutral component of technical change accounts for 18–24% of the overall increase of the skill premium due to technical change, and that the mechanism through which this component of technical change affects the skill premium is via skill-biased structural change.
Highlights
The substantial increase in the wages of high-skilled workers relative to low-skilled workers is one of the most prominent secular trends in the US and other advanced economies
If the process of development is systematically associated with a shift in the composition of value added toward sectors that are intensive in highskill workers, the relative demand for high-skilled workers will increase, even if development is driven by the skill-neutral component of technical change
The procedure described in the previous section implies that our calibrated model will perfectly account for the observed change in the skill premium between 1977 and 2005
Summary
The substantial increase in the wages of high-skilled workers relative to low-skilled workers is one of the most prominent secular trends in the US and other advanced economies. If (as we show is the case ) the process of development is systematically associated with a shift in the composition of value added toward sectors that are intensive in highskill workers, the relative demand for high-skilled workers will increase, even if development is driven by the skill-neutral component of technical change. In the third step we use our model to decompose the overall increase of the skill premium into four components: one due to the change in the relative supply of high-skill workers, a second due to skill-biased technical change, a third due to sectorspecific skill-neutral change, and a fourth term that represents the interaction between the two types of technical change.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
