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What Drives the Skill Premium: Technological Change or Demographic Variation?

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  • Hui He

    ()
    (Department of Economics, University of Hawaii at Manoa)

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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 in the postwar U.S. economy. I develop an overlapping generations general equilibrium 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 through changing the age structure and hence relative supply of skilled labor. I find that demographic change is more important in shaping the skill premium before 1980. Since then, ISTC takes over to drive the dramatic increase in the skill premium.

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File URL: http://www.economics.hawaii.edu/research/workingpapers/WP_09-11.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by University of Hawaii at Manoa, Department of Economics in its series Working Papers with number 200911.

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Length: 40 pages
Date of creation: 01 Mar 2009
Date of revision:
Handle: RePEc:hai:wpaper:200911

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Keywords: Skill Premium; Schooling Choice; Demographic and Technological Change; Capital-Skill Complementarity; Overlapping Generations;

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Citations

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Cited by:
  1. Humberto Llavador & Angel Solano-García, 2010. "Immigration Policy with Partisan Parties," Working Papers 499, Barcelona Graduate School of Economics.
  2. Konstantinos Angelopoulos & James Malley & Apostolis Philippopoulos, 2013. "Human capital, social mobility and the skill premium," Working Papers 2013_10, Business School - Economics, University of Glasgow.
  3. Konstantinos Angelopoulos & Stylianos Asimakopoulos & James Malley, 2013. "The optimal distribution of the tax burden over the business cycle," Working Papers 2013_16, Business School - Economics, University of Glasgow.
  4. Hui He, 2009. "Why Have Girls Gone to College? A Quantitative Examination of the Female College Enrollment Rate in the United States: 1955-1980," Working Papers 200912, University of Hawaii at Manoa, Department of Economics.

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