Skill-biased Change Research Articles

Occupational change, computer use and the complementarity effect in the digital age: Evidence from Finland

This article examines the pattern of occupational change in Finland between 2013 and 2018 in light of hypotheses derived from skill- and routine-biased technological change arguments. As extensions to mainstream studies on occupational change, two alternative means of classifying occupations by skill level are used, and data from Statistics Finland’s Quality of Work Survey are combined with data from the Finnish Labour Force Survey. The analysis reveals a pattern of skill-biased change and indications of a digital divide between high-skilled and other occupations with no signs of job polarization. Reasons for country-wide differences in occupational change patterns and the implications of differences in the means of classifying occupations for the results are discussed with suggestions of topics for further studies.

New technology and old institutions: An empirical analysis of the skill-biased demand for older workers in Europe

Using panel data from nine European countries over the period 1970 to 2007, we examine the impact of information and communication technology (ICT) on the demand for older workers (aged 50 and over). We find evidence of a decrease in demand for older workers in the 1970s and 1980s. It can be argued that the impact of ICT on demand for older workers is skill-biased. However, the skill-biased demand for older workers is mainly reflected in the skill-biased changes in employment shares rather than relative wages. There is some evidence of a gradual deskilling of older workers. We find that labour market institutions such as the national minimum wage, social pacts on wage issues and union density mostly benefit skilled older workers, while coordination of wage setting, extension of collective agreements, social pacts on pensions and centralisation of wage bargaining can alleviate the adverse effects of skill-biased technological change.

The Supply of Foreign Talent: How Skill-Biased Technology Drives the Skill Mix of Immigrants Evidence From Switzerland 1990– 2010

An important goal of immigration policy is facilitating the entry and supply of workers whose skills are scarce in national labour markets. In recent decades, the introduction of information and communication technology [ICT] fuelled the demand for highly skilled workers at the expense of lower skill groups throughout the developed world. In this paper, we show that the skill mix of newly arriving immigrants strongly responded to this shift in the demand for skills. Exploiting the fact that different regions in Switzerland were differentially exposed to ICT due to their pre-ICT industrial composition, we present evidence suggesting more exposed regions experienced stronger growth in relative employment and wage premia for highly skilled workers between 1990 and 2010. We find robust evidence that regions with higher initial ICT exposure experienced a considerably stronger relative influx of highly skilled immigrants. Taken together, these results strongly sug- gest that immigrants responded to skill-biased changes in economic opportunities. Complementing these findings, we document whether and how the response of immigrants to skill demand changed when Switzerland abolished immigration restrictions for European workers.

Worker heterogeneity, the job-finding rate, and technical change

We examine the implications of changes in the skill distribution on the equilibrium matching process and the job finding rate, using a directed search approach. Worker abilities are selected from a distribution while firms face heterogeneous entry costs and direct their job offers to workers. We identify conditions under which technical progress increases or decreases the job finding rate, allowing for entry and the effects of technical changes on heterogeneity. We find that the effects of skill-neutral technical progress on job finding rates are unambiguously non-negative, but the effects of skill-biased changes depend on the elasticity of vacancy costs. However, both skill-neutral and skill-biased technical changes are Pareto improving, ex ante, if all agents are risk neutral.

The Firm Size Distribution across Countries and Skill-Biased Change in Entrepreneurial Technology

Development is associated with systematic changes in the firm size distribution. I document that the mean and dispersion of firm size are larger in rich countries, and increased over time for US firms. To analyze the firm size-development link, I construct a frictionless general equilibrium model of occupational choice with skill-biased change in entrepreneurial technology (i.e., technical progress favors better entrepreneurs). The model accounts for key aspects of the US experience with only changes in aggregate technology. It attributes half the variation in mean and dispersion of firm size across countries to technical change. Distortions also affect the size distribution. (JEL J24, L11, L25, L26, O33)

The Firm Size Distribution Across Countries and Skill-Biased Change in Entrepreneurial Technology

How and why does the firm size distribution differ across countries? Using two datasets covering more than 30 countries, this paper documents that several features of the firm size distribution are strongly associated with income per capita: the entrepreneurship rate and the fraction of small firms fall with per capita income across countries, while average firm employment, the median and higher percentiles of the firm size distribution, and the dispersion and skewness of employment all rise with per capita income. The paper broadens existing evidence on the first three facts to cover more countries and newly introduces the last three to the literature. It then proposes a simple theory of skill-biased change in entrepreneurial technology motivated by recent microeconomic literature that fits with the evidence. For this, it introduces two additional features into an otherwise standard occupational choice, heterogeneous firm model a la Lucas (1978): technological change does not benefit all potential entrepreneurs equally, and there is a positive relationship between an individual's potential payoffs in working and in entrepreneurship. If some firms consistently benefit more from technological progress than others, they stay closer to the frontier, while others fall behind. Because wages rise for all workers, marginal entrepreneurs exit and become workers. Quantitatively, the model fits both the U.S. time series experience and cross-country patterns well.

Changes in Wage Structure in Mexico Going Beyond the Mean: An Analysis of Differences in Distribution, 1987-2008

This paper conducts an empirical analysis of the relationship between wage inequality, employment structure, and returns to education in urban areas of Mexico during the past two decades (1987-2008). Applying Melly's (2005) quantile regression based decomposition, we find that changes in wage inequality have been driven mainly by variations in educational wage premia. Additionally, we find that changes in employment structure, including occupation and firm size, have played a vital role. This evidence seems to suggest that the changes in wage inequality in urban Mexico cannot be interpreted in terms of a skill-biased change, but rather they are the result of an increasing demand for skills during that period.

Wage Inequality and Unemployment with Overeducation

A skill-biased change in technology can account at once for the changes observed in a number of important variables of the US labour market between 1970 and 1990. These include the increasing inequality in wages, both between and within education groups, and the increase in unemployment at all levels of education. In contrast, in previous literature this type of technology shock cannot account for all of these changes. The paper uses a matching model with a segmented labour market, an imperfect correlation between individual ability and education, and a fixed cost of setting up a job. The endogenous increase in overeducation is key to understand the response of unemployment to the technology shock.

Changes in Wage Structure in Mexico Going Beyond the Mean: An Analysis of Differences in Distribution, 1987-2008

This paper conducts an empirical analysis of the relationship between wage inequality, employment structure, and returns to education in urban areas of Mexico during the past two decades (1987-2008). Applying Melly's (2005) quantile regression based decomposition, we find that changes in wage inequality have been driven mainly by variations in educational wage premia. Additionally, we find that changes in employment structure, including occupation and firm size, have played a vital role. This evidence seems to suggest that the changes in wage inequality in urban Mexico cannot be interpreted in terms of a skill-biased change, but rather they are the result of an increasing demand for skills during that period.

Far away from a skill-biased change: falling educational wage premia in Italy

In this article we apply quantile regressions to investigate the evolution of Educational Wage Premia (EWP) in Italy from 1993 to 2004. Using the Survey of the Household Income and Wealth (SHIW, Bank of Italy) and different classifications for educational attainments, we show that, in the private sector, EWP have generally decreased over time, considering both continuous and categorical specifications for education, at all quantiles of the wage distribution. Different patterns are observed in the public sector, where EWP remain basically stable over time. A number of robustness checks and various econometric specifications are also applied in order to address sample selection issues. Our findings provide additional evidence in favour of the thesis that the increasing patterns in inequality and EWP, and the related interpretations concerning skill-biased changes, are much less pronounced in continental Europe than in Anglo-Saxon countries.

Skill-Biased Change in Entrepreneurial Technology

Skill-Biased Change in Entrepreneurial Technology

Are Changes in Education Important for the Wage Premium and Unemployment?

AbstractA generalized rise in unemployment rates for both college and high-school gradu-ates, a widening education wage premium, and a sharp increase in college educationparticipation are characteristic features of the transformations observed in the U.S. la-bor market between 1970 and 1990. This paper investigates the interactions betweenthese changes in the labor market and in educational attainment. First, it developsan equilibrium search and matching model of the labor market where education isendogenously determined. Other important features of the model are a labor marketwhich is segmented by education levels, and the imperfect correlation between skilland education in the labor force. Second, calibrated versions of the model are used tostudy quantitatively whether either a skill-biased change in technology or a mismatchshock can explain the above facts, and to assess the importance of the links betweeneducation and the labor market. The skill-biased shock accounts for a considerablepart of the changes but fails to produce the increase in unemployment for the edu-cated labor force. The mismatch shock explains instead much of the change in thefour variables, including the wage premium. The endogenous response of educationcontributes positively to fit better the model’s predictions to the data on wages andunemployment, especially so under the mismatch shock.

Skill-Biased Transition: The Role of Markets, Institutions, and Technological Change

This study attempts to explain why the transition to a market economy is skill-biased. It shows unequivocal evidence on increased skill wage premium and supply of skills in transition economies. It examines whether similar skill-favoring shifts in the Russian and U.S. economies are driven by the same set of factors. Our analysis elaborates on the model of alternative theories of the increased wage skill premium and then evaluates three main hypotheses: skill-biased technological change, the market adjustment hypothesis, and the institutional factor hypothesis. To test these hypotheses, the study uses unique linked employer-employee data that spans the 16 years of the Soviet and transition periods in Russia (1985-2000), with a special emphasis on data quality, measurement errors, and retrospective biases. The main conclusion is that there is no uni-causal and time-invariant explanation for skill-biased changes in wages and employment in the Russian economy. The increased skill wage premium has been driven mainly by institutional factors during the early period and by productivity and technological change during the late transition period, and reinforced by market adjustment of wage ratio to the true differences in labor productivity.

The economics of production systems: Segmentation and skill-biased change

In this paper, the concept of production systems is introduced. I assume a standard thick-market externality together with the idea that higher quality goods also require higher skills from workers. Firms face a trade-off between low-quality goods with low skill-requirements for which the potentially abundant labour force generates strong thick-market externalities and higher quality goods with higher skill-requirements. In equilibrium, the economy is partitioned into production systems, i.e., clusters of firms producing the same quality. The distribution of skills determines the boundaries of the production systems, which in turn determine the wages. In this framework an increase in the supply of skilled workers can induce first higher wages for all workers and then higher wages for the skilled but lower wages for the unskilled. This is consistent with the late 20th century evolution of the US labour market.

Wage and test score dispersion: some international evidence

Previous research has shown that wage-setting institutions help explain international differences in wage inequality. We expand on this theme to explore the role that educational institutions play in determining differences in wage dispersion across countries and within countries over time. We compare the distribution of test scores at age thirteen in 1964 and 1982 and wages later in life across eleven countries. We find that wage dispersion later in life is never greater than test score dispersion. In particular, Lorenz curves for a cohort’s wages always lie above or on top of the cohort’s test score Lorenz curve. Furthermore, wage dispersion, as summarized by Gini coefficients, is significantly related to test score dispersion in the country. A general fall in test score dispersion between 1962 and 1982 appears to be reflected in reduced wage dispersion within cohorts. For three countries with available data (the US, the UK, and Japan), we find evidence of skill-biased changes in wage dispersion between the early 1970s and the late 1980s.