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Skill-biased technical change and labor market inefficiency

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  • Battisti, Michele
  • Gatto, Massimo Del
  • Parmeter, Christopher F.

Abstract

The economic literature has so far produced limited (country-level) evidence on the magnitude of skill-biased technical change (SBTC), and has not yet investigated the extent to which, coupled with labor market imperfections, SBTC is associated with inefficient use of labor. We present a novel approach to estimate SBTC allowing for the presence of labor market inefficiency. Using data taken from the World Input-Output Database across 38 countries and 30 sectors, we provide the first country-sector evidence of SBTC during the 1995–2005 period and quantify the extent of economic inefficiency arising from labor market imperfections. On average, we find that the productivity of skilled workers grows by approximately 11.5% more than that of unskilled workers, mostly driven by SBTC (13.7%), rather than factor accumulation (−2.1%). Economic inefficiency decreases by 10.5% on average, and labor market rigidities are more binding in sectors that are more exposed to technological change. Substantial heterogeneity is also observed.

Suggested Citation

  • Battisti, Michele & Gatto, Massimo Del & Parmeter, Christopher F., 2022. "Skill-biased technical change and labor market inefficiency," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:dyncon:v:139:y:2022:i:c:s0165188922001348
    DOI: 10.1016/j.jedc.2022.104428
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    More about this item

    Keywords

    Skill-biased technical change; Technological progress; Production function estimation; Wage premium;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • 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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