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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)

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.

Suggested Citation

  • Hui He, 2009. "What Drives the Skill Premium: Technological Change or Demographic Variation?," Working Papers 200911, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:200911
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    9. Davoine, Thomas & Mankart, Jochen, 2017. "Changes in education, wage inequality and working hours over time," Discussion Papers 38/2017, Deutsche Bundesbank.
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    12. Angelopoulos, Konstantinos & Jiang, Wei & Malley, James, 2015. "Fiscal multipliers in a two-sector search and matching model," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-67, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    14. Slavik, Ctirad & Yazici, Hakki, 2015. "Determinants of Wage and Earnings Inequality in the United States," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113021, Verein für Socialpolitik / German Economic Association.
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    More about this item

    Keywords

    Skill Premium; Schooling Choice; Demographic and Technological Change; Capital-Skill Complementarity; Overlapping Generations;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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