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What drives the skill premium: Technological change or demographic variation?

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  • He, Hui

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 and the college enrollment rate in the postwar U.S. economy. We develop a general equilibrium overlapping generations 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 by changing the age structure and hence the relative supply of skilled labor. We find that ISTC is the key element driving the skill premium in the postwar U.S. economy. And it is quantitatively important for the dynamics of the college enrollment rate. The quantitative importance of the demographic change for the evolution of both the skill premium and the college enrollment rate however is limited.

Suggested Citation

  • He, Hui, 2012. "What drives the skill premium: Technological change or demographic variation?," European Economic Review, Elsevier, vol. 56(8), pages 1546-1572.
  • Handle: RePEc:eee:eecrev:v:56:y:2012:i:8:p:1546-1572
    DOI: 10.1016/j.euroecorev.2012.09.005
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    Cited by:

    1. Davoine, Thomas & Mankart, Jochen, 2017. "Changes in education, wage inequality and working hours over time," Discussion Papers 38/2017, Deutsche Bundesbank.
    2. Llavador, Humberto & Solano-García, Angel, 2011. "Immigration policy with partisan parties," Journal of Public Economics, Elsevier, vol. 95(1-2), pages 134-142, February.
    3. Schäfer, Andreas, 2014. "Technological change, population dynamics, and natural resource depletion," Mathematical Social Sciences, Elsevier, vol. 71(C), pages 122-136.
    4. Konstantinos Angelopoulos & Wei Jiang & James Malley, 2015. "Fiscal multipliers in a two-sector search and matching model," Working Papers 2015_03, Business School - Economics, University of Glasgow.
    5. Hui He, 2011. "Why Have Girls Gone to College? A Quantitative Examination of the Female College Enrollment Rate in the United States: 1955-1980," Annals of Economics and Finance, Society for AEF, vol. 12(1), pages 41-64, May.
    6. Stephen J. Turnovsky & Aditi Mitra, 2013. "The Interaction between Human and Physical Capital Accumulation and the Growth-Inequality Trade-off," Journal of Human Capital, University of Chicago Press, vol. 7(1), pages 26-75.
    7. Slavik, Ctirad & Yazici, Hakki, 2015. "Determinants of Wage and Earnings Inequality in the United States," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113021, Verein für Socialpolitik / German Economic Association.
    8. Konstantinos, Angelopoulos & James, Malley & Apostolis, Philippopoulos, 2013. "Human capital, social mobility and the skill premium," SIRE Discussion Papers 2013-55, Scottish Institute for Research in Economics (SIRE).
    9. repec:eee:eecrev:v:98:y:2017:i:c:p:217-239 is not listed on IDEAS
    10. Konstantinos Angelopoulos & Stylianos Asimakopoulos & Jim Malley, 2013. "The Optimal Distribution of the Tax Burden over the Business Cycle," CESifo Working Paper Series 4468, CESifo Group Munich.
    11. Baja Daza, Gover & Fernández Tellería, Bernardo X. & Zavaleta Castellón, David, 2014. "Diminishing commodity prices and capital flight in a dutch disease and resource curse environment: The case of Bolivia," MPRA Paper 75702, University Library of Munich, Germany, revised Dec 2014.
    12. Konstantinos Angelopoulos & Wei Jiang & James Malley, 2017. "Targeted fiscal policy to increase employment and wages of unskilled workers," Studies in Economics 1704, School of Economics, University of Kent.
    13. 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).

    More about this item

    Keywords

    Skill premium; Schooling choice; Capital–skill complementarity; Investment-specific technological change; Demographic change;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • 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
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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