The Collapse of Low-Skill Wages
This paper assesses the empirical support for the skill mismatch story, outlines an institutionalist alternative, and contrasts their policy implications. The first part of the paper considers the empirical support for the underlying premise of the skill mismatch explanation for the earnings collapse: Has there, in fact, been a strong shift in demand away from low-skill workers? Does the timing of employment shifts by skill group across industries match trends in computerization? Have there been observable declines in low-wage employment shares and substantial increases in low-skill joblessness, as the neoclassical model would predict if there is skill mismatch? I find that the answer to each of these questions is no and conclude that it is necessary to look beyond supply and demand shifts to explain the wage collapse. The second part of the paper represents a tentative first attempt to do this. And as befits a working paper, the paper concludes with a discussion of the policy implications of the two explanations.
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