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Does the Sector Bias of Skill-Biased Technical Change Explain Changing Wage Inequality?

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Haskel, Jonathan
Slaughter, Matthew

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Abstract

This paper examines whether the sector bias of skill-biased technical change (SBTC) explains changing skill premia within countries in recent decades. First, using a two-factor, two-sector, two-country model we demonstrate that in many cases it is the sector bias of SBTC that determines SBTC’s effect on relative factor prices, not its factor bias. Thus, rising (falling) skill premia are caused by more extensive SBTC in skill-intensive (unskill-intensive) sectors. Second, we test the sector-bias hypothesis using industry data for many countries in recent decades. An initial consistency check strongly supports the hypothesis. Among ten countries we find a strong correlation between changes in skill premia and the sector bias of SBTC during the 1970s and 1980s. The hypothesis is also strongly supported by more structural estimation on UK and US data of the economy-wide wage changes ‘mandated’ to maintain zero profits in all sectors in response to the sector bias of SBTC. The suggestive mandated-wage estimates match the direction of actual wage changes in both countries during both the 1970s and the 1980s. Thus, the empirical evidence strongly suggests that the sector bias of SBTC can help explain changing skill premia.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1940.

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Date of creation: Aug 1998
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Handle: RePEc:cpr:ceprdp:1940

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Related research
Keywords: Technical change; Trade; Wage Inequality;

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Find related papers by JEL classification:
F1 - International Economics - - Trade
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
O3 - Economic Development, Technological Change, and Growth - - Technological Change

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Berman, E. & Bound, J. & Machin, S., 1997. "Implications of Skill-Biased Technological Change: International Evidence," Papers 25, Centre for Economic Performance & Institute of Economics.
    Other versions:
  2. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December. [Downloadable!] (restricted)
  3. repec:fth:prinin:377 is not listed on IDEAS
  4. Topel, Robert H, 1997. "Factor Proportions and Relative Wages: The Supply-Side Determinants of Wage Inequality," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 55-74, Spring. [Downloadable!] (restricted)
  5. R. E. Baldwin & G. G. Cain, . "Shifts in U.S. Relative Wages: The Role of Trade, Technology, and Factor Endowments," Institute for Research on Poverty Discussion Papers 1132-97, University of Wisconsin Institute for Research on Poverty. [Downloadable!]
  6. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August. [Downloadable!] (restricted)
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  7. Robert E. Baldwin & Glen G. Cain, 1997. "Shifts in U.S. Relative Wages: The Role of Trade, Technology and Factor Endowments," NBER Working Papers 5934, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Fortin, Nicole M & Lemieux, Thomas, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring. [Downloadable!] (restricted)
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  12. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May. [Downloadable!] (restricted)
  13. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed The Labor Market?," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1169-1213, November. [Downloadable!] (restricted)
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  14. Paul Krugman, 1995. "Technology, Trade, and Factor Prices," NBER Working Papers 5355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Leamer, Edward E. & Levinsohn, James, 1995. "International trade theory: The evidence," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 26, pages 1339-1394 Elsevier. [Downloadable!] (restricted)
    Other versions:
  16. Freeman, Richard B, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer. [Downloadable!] (restricted)
  17. James Harrigan, 1997. "Estimation of Cross-Country Differences in Industry," NBER Working Papers 6121, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. J. Paul Dunne & Lawrence Edwards, 2006. "Trade Technology and Employment: A case Study of South Africa," Discussion Papers 0602, University of the West of England, Department of Economics. [Downloadable!]
  2. T. Huw Edwards & John Whalley, 2002. "Short and Long Run Decompositions of OECD Wage Inequality Changes," NBER Working Papers 9265, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Jeff Borland, 2000. "Economic Explanations of Earnings Distribution Trends in the International Literature and Application to New Zealand," Treasury Working Paper Series 00/16, New Zealand Treasury. [Downloadable!]
  4. Lisandro Abrego & John Whalley, 2002. "Decomposing Wage Inequality Change Using General Equilibrium Models," NBER Working Papers 9184, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Haskel, Jonathan & Slaughter, Matthew, 1999. "Trade, Technology and UK Wage Inequality," CEPR Discussion Papers 2091, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Snower, Dennis J., 1999. "Causes of Changing Earnings Inequality," IZA Discussion Papers 29, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Eli Berman, 2000. "Does Factor-Biased Technological Change Stifle International Covergence? Evidence from Manufacturing," NBER Working Papers 7964, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. James Harrigan & Rita Balaban, 1999. "U.S. Wages in General Equilibrium: The Effects of Prices, Technology, and Factor Supplies, 1963-1991," NBER Working Papers 6981, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Bruinshoofd,Allard & Hollanders,Hugo & Weel,Bas,ter, 1999. "Knowledge Spillovers and Wage Inequality: An Empirical Investigation of Knowledge-Skill Complementarity," Research Memoranda 008, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  10. Mariacristina Piva & Marco Vivarelli, 2004. "The determinants of the skill bias in Italy: R&D, organisation or globalisation?," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 13(4), pages 329-347, June. [Downloadable!] (restricted)
  11. Matthew J. Slaughter, 1998. "What Are the Results of Product-Price Studies and What Can We Learn From Their Differences?," NBER Working Papers 6591, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. A. Atkinson, 2008. "The economics of the welfare state in today’s world," International Tax and Public Finance, Springer, vol. 15(1), pages 5-17, February. [Downloadable!] (restricted)
  13. Raymond Robertson, 2006. "Globalization and Mexican labor markets," Proceedings, Federal Reserve Bank of Dallas, pages 61-80. [Downloadable!]
  14. Steven Vincent Dunaway & Martin David Kaufman & Rodolfo Luzio, 2001. "Returns to Human Capital & Investment in New Technology," IMF Working Papers 01/133, International Monetary Fund. [Downloadable!]
  15. Haskel, Jonathan, 2000. "The Trade and Labour Approaches to Wage Inequality," CEPR Discussion Papers 2476, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  16. David Rigby & Sebastien Breau, 2006. "Impacts of Trade on Wage Inequality in Los Angeles: Analysis Using Matched Employer-Employee Data," Working Papers 06-12, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
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