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Accounting for Skill Premium Patterns during the EU Accession: Productivity or Trade?

Author

Listed:
  • Sang-Wook (Stanley) Cho

    (School of Economics, Australian School of Business, the University of New South Wales)

  • Juliàn P. Dìaz

    (Department of Economics, Quinlan School of Business, Loyola University)

Abstract

In this article, we disentangle the relationship between the skill premium, trade liberalization and productivity changes in accounting for the skill premium patterns of transition economies that joined the European Union (EU) in 2004. To conduct our analysis, we construct an applied general equilibrium model with skilled and unskilled labor, and combining Social Accounting Matrices, Household Budget Surveys and the EU KLEMS Growth and Productivity Accounts database, we calibrate it to match Hungarian data, a transition economy wherethe skill premium consistently increased between 1995 and 2005. We then assess the role of the multiple factors that affected the patterns of the skill premium: trade liberalization reforms, factor and sector bias of technical change and capital deepening, and find that all the factors can jointly account for approximately 87% of the actual change in skill premium between 1995 and 2005. Individually, capital deepening accounts for the largest share of the rise in the skill premium, whereas trade liberalization accounts for a small portion of that increase. While productivity changes account for only a small fraction of the skill premium increases during 1995 and 2000, they significantly offset the impact of the capital deepening on the skill premium in the period between 2000 and 2005.

Suggested Citation

  • Sang-Wook (Stanley) Cho & Juliàn P. Dìaz, 2014. "Accounting for Skill Premium Patterns during the EU Accession: Productivity or Trade?," Discussion Papers 2014-14, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2014-14
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2014-14.pdf
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    More about this item

    Keywords

    Transition Economies; Skill Premium; Trade Liberalization; Skill-biased Technical Change; Capital-skill complementarity;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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