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Skill-Biased Technological Change: Is there Hope for the Unskilled?

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  • Matthias Weiss

    ()
    (Munich Center for the Economics of Aging (MEA))

Abstract

This paper challenges the common view that skill-biased technological change boosts wage inequality. In a multi-sector economy, relative wages depend not only on relative productivities but also on relative goods prices. If there are complementarities between goods that do not benefit greatly from technological innovations and other goods whose production costs fall in the course of technical progress, the relative price of these "low-tech" goods rises. If the production of these "low-tech" goods is intensive in the use of unskilled labor, unskilled workers benefit from this increase in the relative goods price. This paper presents a simple two-sector, two-factor model of perpetual exogenous skill-biased technological change. The model is able to explain the increase in wage inequality in the 1980s and the subsequent stabilization of the wage structure in the 1990s.

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Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 04045.

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Date of creation: 30 Mar 2004
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Handle: RePEc:mea:meawpa:04045

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  1. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  2. Paul Beaudry & David A. Green, 2002. "Changes in U.S. Wages 1976-2000: Ongoing Skill Bias or Major Technological Change?," NBER Working Papers 8787, National Bureau of Economic Research, Inc.
  3. Sergio Rebelo & Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 01/85, International Monetary Fund.
  4. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
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  6. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  7. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October.
  8. Weiss, Matthias, 2008. "Skill-biased technological change: Is there hope for the unskilled?," Economics Letters, Elsevier, vol. 100(3), pages 439-441, September.
  9. David Autor & Lawrence Katz & Alan Krueger, 1997. "Computing Inequality: Have Computers Changed the Labor Market?," Working Papers 756, Princeton University, Department of Economics, Industrial Relations Section..
  10. Stephen Machin, 1995. "Changes in the Relative Demand for Skills in the UK Labour Market," CEP Discussion Papers dp0221, Centre for Economic Performance, LSE.
  11. Richard Dickens & David T. Ellwood, 2001. "Whither Poverty in Great Britain and the United States? The Determinants of Changing Poverty and Whether Work Will Work," NBER Working Papers 8253, National Bureau of Economic Research, Inc.
  12. Mazzolari, Francesca & Ragusa, Giuseppe, 2007. "Spillovers from High-Skill Consumption to Low-Skill Labor Markets," IZA Discussion Papers 3048, Institute for the Study of Labor (IZA).
  13. R. Nahuis & H.L.F. de Groot, 2003. "Rising skills premia: you ain't seen nothing yet," Working Papers 03-02, Utrecht School of Economics.
  14. Mary Daly & Rob Valletta, 2003. "Earnings inequality and earnings mobility in the U.S," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep26.
  15. Haskel, Jonathan E, 2000. "Trade and Labor Approaches to Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 397-408, August.
  16. Aghion, Philippe & Caroli, Eve & Garcia-Penalosa, Cecilia, 1999. "Inequality and economic growth: the perspective of the new growth theories," CEPREMAP Working Papers (Couverture Orange) 9908, CEPREMAP.
  17. Gregg, Paul & Manning, Alan, 1997. "Skill-biassed change, unemployment and wage inequality," European Economic Review, Elsevier, vol. 41(6), pages 1173-1200, June.
  18. Haskel, Jonathan E. & Slaughter, Matthew J., 2002. "Does the sector bias of skill-biased technical change explain changing skill premia?," European Economic Review, Elsevier, vol. 46(10), pages 1757-1783, December.
  19. Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-14, May.
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Cited by:
  1. Wielandt, Hanna & Senftleben, Charlotte, 2012. "The Polarization of Employment in German Local Labor Markets," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62063, Verein für Socialpolitik / German Economic Association.
  2. Matthias Weiss, 2004. "Skill-Biased Technological Change: Is there Hope for the Unskilled?," MEA discussion paper series 04045, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  3. Autor, David & Dorn, David, 2012. "The Growth of Low Skill Service Jobs and the Polarization of the U.S. Labor Market," IZA Discussion Papers 7068, Institute for the Study of Labor (IZA).
  4. Das, Gouranga, 2012. "Trans-border Land Acquisitions:A New Guise of Outsourcing and Host Country Effects," MPRA Paper 40651, University Library of Munich, Germany.
  5. Nicholas Rohde & Ross Guest, 2013. "Multidimensional Racial Inequality in the United States," Social Indicators Research, Springer, vol. 114(2), pages 591-605, November.
  6. Charlotte Senftleben & Hanna Wielandt, 2012. "The Polarization of Employment in German Local Labor Markets," SFB 649 Discussion Papers SFB649DP2012-013, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  7. Jaewon Jung & Jean Mercenier, 2010. "Routinization-Biased Technical Change, Globalization and Labor Market Polarization: Does Theory Fit the Facts?," Working Papers 13/2010, University of Verona, Department of Economics.
  8. van de Klundert, Theo, 2008. "Looking back, looking ahead: Biased technological change, substitution and the wage gap," Journal of Macroeconomics, Elsevier, vol. 30(2), pages 707-713, June.
  9. Melanie Lührmann & Matthias Weiss, 2006. "Market Work, Home Production, Consumer Demand and Unemployment among the Unskilled," MEA discussion paper series 06101, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  10. Lührmann, Melanie & Weiss, Matthias, 2010. "The effect of working time and labor force participation on unemployment: A new argument in an old debate," Economic Modelling, Elsevier, vol. 27(1), pages 67-82, January.

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