Abstract
As we have seen in chapter 1 (section 1.5), despite a rising relative supply of high-skilled labor, wage inequality across skill groups has surged in the U.S. and Great Britain, and, at least, it has not declined in most other countries.1 In addition, both absolute and relative unemployment rates of low-skilled labor have substantially increased in almost all OECD countries.2 These facts strongly indicate that relative labor demand has shifted towards high-skilled labor, thus deteriorating (at least relative) earning opportunities of low-skilled workers. According to a standard view, this shift has been due to “a change in the production function that raises the marginal product of the skilled relative to the unskilled” [Krugman (1994, p. 37)], a hypothesis which is commonly referred to as `skill-biased technological change’ (SBTC).3
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