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Sectoral Value Added Prices, TFP Growth, and the Low-Skilled Wage in High-Income Countries

  • Matthias Lücke

This econometric analysis investigates the impact of changes in sectoral value-added prices and total factor productivity (TFP) on the equilibrium relative wage of low-skilled workers in eleven high-income countries. The key finding is that TFP growth mandated an increase in the unskilled wage, relative to the remuneration of human capital, during the 1970s, but a decrease during the 1980s. This is consistent with the observation that, in most sample countries, the relative wage and employment opportunities of low-skilled workers tended to improve until about 1980, but have deteriorated since then. While the regression results suggest that technological change played a large role in shifting labour demand against low-skilled workers, this conclusion is qualified because the empirical evidence is also compatible with product upgrading and outsourcing of low-skill intensive production activities to low-income countries.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 923.

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Length: 41 pages
Date of creation: Apr 1999
Handle: RePEc:kie:kieliw:923
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