Skill mix and technology in Spain: evidence from firm level data

Like businesses in other developed countries, Spanish firms increased the share of skilled workers they employed during the 1990s. This paper attempts to examine whether this change in the Spanish labor market can be attributed to demand shifts or to skill biased technological change. It finds, just as in the US, that skill biased technological change is a more likely hypothesis. Using a type of decomposition methodology, I find that the increase in aggregate skill mix comes mainly from continuing firms increasing their labor skill mixes –presumably in response to the re tooling or upgrades in technology in these firms–. Unlike the findings in the US, my results indicate that the increase in aggregate skill mix in Spain seems to be procyclical. Going further, I also perform sub decompositions that categorize firms according to dimensions that reflect the "idiosyncrasies" of Spain's labor market; in particular the use of permanent vs. temporary contracts. The results support the idea that temporary worker contracts may be lending flexibility to the labor market as policymakers intended. Finally, I examine the dynamics of skill mix changes according to the firms' rate of technological innovation. The results show that the most innovative firms account for the majority of the increase in skill mix during the 1990s in Spain, a finding that support the skill biased technological change hypothesis.