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What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?

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  • Paul Beaudry
  • David Green

Abstract

This paper proposes a new and unified explanation for the following trends observed over the last 25 years: (1) the increased returns to education, (2) the slow measured growth in TFP in an economy undergoing massive changes in its methods of production, and (3) the poor wage performance, relative to TFP growth, of both young high school and college educated workers. The explanation we propose downplays the role of exogenous skill-biased technological change and instead emphasizes how the endogenous choice of modes of organization, influenced by changes in factor supplies, can generate the above observations. For example, we argue that increased education attainment, through its effect of the choice production techniques, may have been the major cause for the increased differential between more and less educated workers over the last quarter of a century. The evidence we examine to test our hypothesis is based on US and Canadian data over the period 1971 - 95. We pay particular attention to explaining the difference between our results and those associated with the skill-biased technical change hypothesis.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6853.

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Date of creation: Dec 1998
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Handle: RePEc:nbr:nberwo:6853

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  1. James Albrecht & Susan Vroman, 2000. "A Matching Model with Endogenous Skill Requirements," Econometric Society World Congress 2000 Contributed Papers 0774, Econometric Society.
  2. Paul Beaudry & David Green, 1997. "Cohort Patterns in Canadian Earnings: Assessing the Role of Skill Premia in Inequality Trends," NBER Working Papers 6132, National Bureau of Economic Research, Inc.
  3. Timothy F. Bresnahan & Manuel Trajtenberg, 1992. "General Purpose Technologies "Engines of Growth?"," NBER Working Papers 4148, National Bureau of Economic Research, Inc.
  4. 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.
  5. W. Erwin Diewert & Kevin J. Fox, 1999. "Can measurement error explain the productivity paradox?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(2), pages 251-280, April.
  6. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, Econometric Society, vol. 68(5), pages 1029-1054, September.
  7. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
  8. Diewert, W E & Woodland, A D, 1977. "Frank Knight's Theorem in Linear Programming Revisited," Econometrica, Econometric Society, Econometric Society, vol. 45(2), pages 375-98, March.
  9. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 410-42, June.
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