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What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?

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  • Paul Beaudry
  • David Green

Abstract

This paper proposes a new and unified explanation for the following trends observed over the last 25 years: (1) the increased returns to education, (2) the slow measured growth in TFP in an economy undergoing massive changes in its methods of production, and (3) the poor wage performance, relative to TFP growth, of both young high school and college educated workers. The explanation we propose downplays the role of exogenous skill-biased technological change and instead emphasizes how the endogenous choice of modes of organization, influenced by changes in factor supplies, can generate the above observations. For example, we argue that increased education attainment, through its effect of the choice production techniques, may have been the major cause for the increased differential between more and less educated workers over the last quarter of a century. The evidence we examine to test our hypothesis is based on US and Canadian data over the period 1971 - 95. We pay particular attention to explaining the difference between our results and those associated with the skill-biased technical change hypothesis.

Suggested Citation

  • Paul Beaudry & David Green, 1998. "What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?," NBER Working Papers 6853, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6853
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    1. Bresnahan, Timothy F. & Trajtenberg, M., 1995. "General purpose technologies 'Engines of growth'?," Journal of Econometrics, Elsevier, vol. 65(1), pages 83-108, January.
    2. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
    3. Paul Beaudry & David A. Green, 2000. "Cohort patterns in Canadian earnings: assessing the role of skill premia in inequality trends," Canadian Journal of Economics, Canadian Economics Association, vol. 33(4), pages 907-936, November.
    4. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
    5. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
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    7. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
    8. W. Erwin Diewert & Kevin J. Fox, 1999. "Can measurement error explain the productivity paradox?," Canadian Journal of Economics, Canadian Economics Association, vol. 32(2), pages 251-280, April.
    9. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
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    Citations

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    Cited by:

    1. Ci, Wen & Galdo, José & Voia, Marcel & Worswick, Christopher, 2013. "Does adult training benefit Canadian workers?," CLSSRN working papers clsrn_admin-2013-42, Vancouver School of Economics, revised 26 Sep 2013.
    2. David A. Green & Benjamin M. Sand, 2015. "Has the Canadian labour market polarized?," Canadian Journal of Economics, Canadian Economics Association, vol. 48(2), pages 612-646, May.
    3. Boudarbat, Brahim & Lemieux, Thomas & Riddell, Craig, 2008. "The Evolution of the Returns to Human Capital in Canada, 1980-2006," Economics working papers craig_riddell-2008-15, Vancouver School of Economics, revised 22 Oct 2008.
    4. Brahim Boudarbat & Thomas Lemieux & W. Craig Riddell, 2010. "The Evolution of the Returns to Human Capital in Canada, 1980-2005," Canadian Public Policy, University of Toronto Press, vol. 36(1), pages 63-89, March.
    5. Heisz, Andrew & Jackson, Andrew & Picot, Garnett, 2002. "Winners and Losers in the Labour Market of the 1990s," Analytical Studies Branch Research Paper Series 2002184e, Statistics Canada, Analytical Studies Branch.
    6. Heisz, Andrew & Jackson, Andrew & Picot, Garnett, 2002. "Les entreprises gagnantes et perdantes du marche de l'emploi des annees 90," Direction des etudes analytiques : documents de recherche 2002184f, Statistics Canada, Direction des etudes analytiques.
    7. Asa Rosén & Etienne Wasmer, 2005. "Higher Education Levels, Firms' Outside Options and the Wage Structure," LABOUR, CEIS, vol. 19(4), pages 621-654, December.
    8. Paul Beaudry & Mark Doms & Ethan Lewis, 2006. "Endogenous skill bias in technology adoption: city-level evidence from the IT revolution," Working Paper Series 2006-24, Federal Reserve Bank of San Francisco.
    9. James Albrecht & Susan Vroman, 2002. "A Matching Model with Endogenous Skill Requirements," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(1), pages 283-305, February.
    10. Olivier, Pierrard & Henri R., Sneessens, 2002. "Low-Skilled Unemployment, Biased Technological Shocks and Job Competition," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2003014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 03 May 2002.
    11. Ethan Lewis, 2005. "Immigration, Skill Mix, and the Choice of Technique," Working Papers 05-04, Center for Economic Studies, U.S. Census Bureau.
    12. David A. Green, 2007. "A Cautionary Discussion about Relying on Human Capital Policy to Meet Redistributive Goals," Canadian Public Policy, University of Toronto Press, vol. 33(4), pages 397-418, December.
    13. Pablo Acosta, 2001. "Los determinantes de la desigualdad en los ingresos laborales: El rol de las nuevas tecnologías y la apertura comercial," Department of Economics, Working Papers 034, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    14. Ethan Lewis, 2004. "How did the Miami labor market absorb the Mariel immigrants?," Working Papers 04-3, Federal Reserve Bank of Philadelphia.
    15. Paul Beaudry & David A. Green, 2002. "Population Growth, Technological Adoption, and Economic Outcomes in the Information Era," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 749-774, October.
    16. Abdurrahman Aydemir & George J. Borjas, 2006. "A Comparative Analysis of the Labor Market Impact of International Migration: Canada, Mexico, and the United States," NBER Working Papers 12327, National Bureau of Economic Research, Inc.
    17. Wen Ci & Jose Galdo & Marcel Voia & Christopher Worswick, 2015. "Wage returns to mid-career investments in job training through employer supported course enrollment: evidence for Canada," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-25, December.
    18. Andrew Heisz & Andrew Jackson & Garnett Picot, 2001. "Distributional Outcomes in Canada During the 1990s," The Review of Economic Performance and Social Progress,in: Andrew Sharpe, Executive Director & France St-Hilaire, Vice-President , Research & Keith Banting, Di (ed.), The Review of Economic Performance and Social Progress 2001: The Longest Decade: Canada in the 1990s, volume 1 Centre for the Study of Living Standards;The Institutute for Research on Public Policy.
    19. Paul Beaudry & Fabrice Collard, 2002. "Why has the Employment-Productivity Tradeoff among Industrialized Countries been so strong?," NBER Working Papers 8754, National Bureau of Economic Research, Inc.
    20. E. et al. Saltari, 2011. "The impact of ICT on the Italian productivity dynamics," Working Papers 149, University of Rome La Sapienza, Department of Public Economics.
    21. Saltari Enrico & Wymer Clifford R. & Federici Daniela & Giannetti Marilena, 2012. "Technological Adoption with Imperfect Markets in the Italian Economy," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 16(2), pages 1-30, April.
    22. Paul Beaudry & David Green, 2001. "Population Growth, Technological Adoption and Economic Outcomes: A Theory of Cross-Country Differences for the Information Era," NBER Working Papers 8149, National Bureau of Economic Research, Inc.
    23. Jeff Borland, 2000. "Economic Explanations of Earnings Distribution Trends in the International Literature and Application to New Zealand," Treasury Working Paper Series 00/16, New Zealand Treasury.
    24. Paul Beaudry & Fabrice Collard & David A. Green, 2005. "Explaining Productivity Growth: The Role of Demographics," International Productivity Monitor, Centre for the Study of Living Standards, vol. 10, pages 45-58, Spring.
    25. Paul Beaudry & David Green, 2000. "The Changing Structure of Wages in the US and Germany: What Explains the Differences?," NBER Working Papers 7697, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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