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What drives the skill premium: Technological change or demographic variation?

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  • He, Hui
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Abstract

This paper quantitatively examines the effects of two exogenous driving forces, investment-specific technological change (ISTC) and the demographic change known as “the baby boom and the baby bust,” on the evolution of the skill premium and the college enrollment rate in the postwar U.S. economy. We develop a general equilibrium overlapping generations model with endogenous discrete schooling choice. The production technology features capital–skill complementarity as in Krusell et al. (2000). ISTC, through capital–skill complementarity, raises the relative demand for skilled labor, while demographic variation affects the skill premium by changing the age structure and hence the relative supply of skilled labor. We find that ISTC is the key element driving the skill premium in the postwar U.S. economy. And it is quantitatively important for the dynamics of the college enrollment rate. The quantitative importance of the demographic change for the evolution of both the skill premium and the college enrollment rate however is limited.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 8 ()
Pages: 1546-1572

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:8:p:1546-1572

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Skill premium; Schooling choice; Capital–skill complementarity; Investment-specific technological change; Demographic change;

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Citations

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Cited by:
  1. Llavador, Humberto & Solano-García, Angel, 2011. "Immigration policy with partisan parties," Journal of Public Economics, Elsevier, vol. 95(1), pages 134-142.
  2. Hui He, 2010. "Why Have Girls Gone to College? A Quantitative Examination of the Female College Enrollment Rate in the United States: 1955-1980," Working Papers 201016, University of Hawaii at Manoa, Department of Economics.
  3. Konstantinos, Angelopoulos & James, Malley & Apostolis, Philippopoulos, 2013. "Human capital, social mobility and the skill premium," SIRE Discussion Papers 2013-55, Scottish Institute for Research in Economics (SIRE).
  4. Konstantinos Angelopoulos & Stylianos Asimakopoulos & Jim Malley, 2013. "The Optimal Distribution of the Tax Burden over the Business Cycle," CESifo Working Paper Series 4468, CESifo Group Munich.

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