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Skill-Biased Technical Change in U.S. Manufacturing: A General Index Approach

  • Baltagi, Badi H.


    (Syracuse University)

  • Rich, Daniel P.


    (Illinois State University)

This article applies recent advances in productivity and efficiency measurement to the evaluation of skillbiased technical change. Using the general index approach we are able to establish an explicit and unconstrained time path for nonneutral technical change between production and nonproduction labor in U.S. manufacturing industries over the 1959-1996 period. Our findings confirm the prevailing interpretation in the labor economics literature that substantial reductions in the relative share of production labor are attributable to a sustained period of nonneutral technical change. However, we find that skill-biased technical change effects are most evident prior to 1983. This predates the diffusion of personal computer technologies in the workplace and the dramatic wage structure changes associated with the 1980’s. In contrast to prevailing alternatives, the general index approach also permits us to explain observed shifts in relative labor demand as a combination of price-induced substitution, nonhomothetic output effects and skill-biased technical change responses to a range of proposed elements.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 841.

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Length: 37 pages
Date of creation: Aug 2003
Date of revision:
Publication status: published in: Journal of Econometrics, 2005, 126 (2), 549-570
Handle: RePEc:iza:izadps:dp841
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References listed on IDEAS
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  1. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
  2. repec:oup:qjecon:v:113:y:1998:i:4:p:1245-1279 is not listed on IDEAS
  3. Binswanger, Hans P., 1973. "The Measurement Of Technical Change Biases With Many Factors Of Production," Staff Papers 14205, University of Minnesota, Department of Applied Economics.
  4. repec:oup:qjecon:v:112:y:1997:i:1:p:253-90 is not listed on IDEAS
  5. Machin, S. & Van Reenen, J., 1997. "Technology and Changes in Skill Structure: Evidence from Seven OECD Countries," Papers 24, Centre for Economic Performance & Institute of Economics.
  6. Eli Berman & John Bound & Zvi Griliches, 1993. "Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing," NBER Working Papers 4255, National Bureau of Economic Research, Inc.
  7. Dominique Goux & Eric Maurin, 1998. "The Decline in Demand for Unskilled Labor : An Empirical Analysis Method and its Application to France," Working Papers 98-53, Centre de Recherche en Economie et Statistique.
  8. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  9. Kumbhakar, Subal C., 2002. "Decomposition of technical change into input-specific components: a factor augmenting approach," Japan and the World Economy, Elsevier, vol. 14(3), pages 243-264, August.
  10. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
  11. Wolff, Edward N., 2002. "The impact of IT investment on income and wealth inequality in the postwar US economy," Information Economics and Policy, Elsevier, vol. 14(2), pages 233-251, June.
  12. Berndt, Ernst R. & Morrison, Catherine J., 1995. "High-tech capital formation and economic performance in U.S. manufacturing industries An exploratory analysis," Journal of Econometrics, Elsevier, vol. 65(1), pages 9-43, January.
  13. Baltagi, Badi H & Griffin, James M, 1988. "A General Index of Technical Change," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 20-41, February.
  14. Nicole M. Fortin & Thomas Lemieux, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring.
  15. repec:oup:qjecon:v:107:y:1992:i:1:p:285-326 is not listed on IDEAS
  16. repec:oup:qjecon:v:113:y:1998:i:4:p:1215-1244 is not listed on IDEAS
  17. Paul, Catherine J Morrison & Siegel, Donald S, 2001. " The Impacts of Technology, Trade and Outsourcing on Employment and Labor Composition," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 241-64, June.
  18. Levy, Robert A & Jondrow, James M, 1986. "The Adjustment of Employment to Technical Change in the Steel and Auto Industries," The Journal of Business, University of Chicago Press, vol. 59(3), pages 475-91, July.
  19. George E. Johnson, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 41-54, Spring.
  20. repec:oup:qjecon:v:109:y:1994:i:2:p:367-97 is not listed on IDEAS
  21. Julian R. Betts, 1997. "The Skill Bias Of Technological Change In Canadian Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 79(1), pages 146-150, February.
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