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Skill-Biased Technological Change: Is there Hope for the Unskilled?

  • Matthias Weiss

    ()

    (Munich Center for the Economics of Aging (MEA))

This paper challenges the common view that skill-biased technological change boosts wage inequality. In a multi-sector economy, relative wages depend not only on relative productivities but also on relative goods prices. If there are complementarities between goods that do not benefit greatly from technological innovations and other goods whose production costs fall in the course of technical progress, the relative price of these "low-tech" goods rises. If the production of these "low-tech" goods is intensive in the use of unskilled labor, unskilled workers benefit from this increase in the relative goods price. This paper presents a simple two-sector, two-factor model of perpetual exogenous skill-biased technological change. The model is able to explain the increase in wage inequality in the 1980s and the subsequent stabilization of the wage structure in the 1990s.

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Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 04045.

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Date of creation: 30 Mar 2004
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Handle: RePEc:mea:meawpa:04045
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  1. Mary Daly & Rob Valletta, 2003. "Earnings inequality and earnings mobility in the U.S," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep26.
  2. Mazzolari, Francesca & Ragusa, Giuseppe, 2007. "Spillovers from High-Skill Consumption to Low-Skill Labor Markets," IZA Discussion Papers 3048, Institute for the Study of Labor (IZA).
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  8. Matthias Weiss, 2004. "Skill-Biased Technological Change: Is there Hope for the Unskilled?," MEA discussion paper series 04045, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
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  15. Haskel, Jonathan E, 2000. "Trade and Labor Approaches to Wage Inequality," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 397-408, August.
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