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The Role of Sectoral Composition in the Evolution of the Skill Wage Premium

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  • Sara Moreira

    (Northwestern University)

Abstract

The main contribution of this paper is to consider sector-specific productivity and factor-specific productivity effects in the analysis of the evolution of the skill wage premium. I use data on wages and employment for 30 industries that compose the U.S. economy to examine the evolution of employment and skill-intensity by sector. To guide the empirical work, I construct a simple two-sector model that explores the role of heterogenous technology in the process of structural change. I show that the college premium depends crucially on industry-specific elasticities of substitution between skilled and unskilled labor and on the nature of the factor augmenting technology. The model allows me to derive closed form expressions for the aggregate elasticity of substitution and estimate its evolution. I find that the degree of skilled-unskilled labor substitutability is diminishing as sectors with low flexibility (e.g. services) are becoming increasingly important.

Suggested Citation

  • Sara Moreira, 2018. "The Role of Sectoral Composition in the Evolution of the Skill Wage Premium," 2018 Meeting Papers 850, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:850
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    References listed on IDEAS

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