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Wages, Skills, and Skill-Biased Technical Change: The Canonical Model Revisited

Author

Listed:
  • Audra Bowlus
  • Lance Lochner
  • Chris Robinson
  • Eda Suleymanoglu

Abstract

While influential, the canonical supply–demand model of the wage returns to skill has faced challenges, including theoretically wrong-signed elasticities of substitution, counterintuitive paths for skill-biased technical change (SBTC), and an inability to account for observed deviations in college premia for younger versus older workers. We show that using improved estimates of skill prices and supplies that account for variation in skills across cohorts helps to explain the college premium differences between younger versus older workers and produces better out-of-sample predictions, positive elasticities of substitution between high- and low-skill workers, and a more modest role for SBTC. We further show that accounting for recession-induced jumps and trend adjustments in SBTC and linking SBTC to direct measures of information technology investment expenditures yield an improved fit, no puzzling slowdown in SBTC during the early 1990s, and a higher elasticity of substitution between high- and low-skill workers than previous ad hoc assumptions.

Suggested Citation

  • Audra Bowlus & Lance Lochner & Chris Robinson & Eda Suleymanoglu, 2023. "Wages, Skills, and Skill-Biased Technical Change: The Canonical Model Revisited," Journal of Human Resources, University of Wisconsin Press, vol. 58(6), pages 1783-1819.
    • Handle: RePEc:uwp:jhriss:v:58:y:2023:i:6:p:1783-1819
    Note: DOI: https://doi.org/10.3368/jhr.0617-8889R1
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    Citations

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    Cited by:

    1. Bengali, Leila & Valletta, Robert G. & Zhao, Cindy, 2025. "Explaining Stagnation in the College Wage Premium," IZA Discussion Papers 17717, IZA Network @ LISER.
    2. Erik Hurst & Patrick J. Kehoe & Elena Pastorino & Thomas Winberry, 2022. "The Distributional Impact of the Minimum Wage in the Short and Long Run," NBER Working Papers 30294, National Bureau of Economic Research, Inc.
    3. Alexander Cline & Barış Kaymak, 2025. "Demand for College Labor in the 21st Century," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2025(04), pages 1-12, March.
    4. Behar, Alberto, 2025. "The elasticity of substitution between skilled and unskilled labor in developing countries: A directed technical change perspective," Journal of Development Economics, Elsevier, vol. 174(C).
    5. Lopez-Velasco, Armando R., 2024. "Neoclassical production, scarcity of skills and Pareto distributions," Economics Letters, Elsevier, vol. 234(C).
    6. Marczak, Martyna & Beissinger, Thomas & Brall, Franziska, 2022. "Technical change, task allocation, and labor unions," Hohenheim Discussion Papers in Business, Economics and Social Sciences 05-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    7. Lipowski, Cäcilia & Salomons, Anna & Zierahn-Weilage, Ulrich, 2024. "Expertise at work: New technologies, new skills, and worker impacts," ZEW Discussion Papers 24-044, ZEW - Leibniz Centre for European Economic Research.
    8. Raquel Fonseca & Etienne Lalé & François Langot & Thepthida Sopraseuth, 2025. "The College Premium Rollercoaster and the Rebound of Lifetime Wage Growth: A Structural Analysis," Cahiers de recherche / Working Papers 2503, Chaire de recherche sur les enjeux économiques intergénérationnels / Research Chair in Intergenerational Economics.
    9. Mark Bils & Bariş Kaymak & Kai-Jie Wu, 2024. "Labor Substitutability among Schooling Groups," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(4), pages 1-34, October.

    More about this item

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • 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

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