Yip, Chi Man (2010): Can't SBTC explain the U.S. wage inequality dynamics?
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Based on the effect of skill-biased technology change (SBTC), this paper builds a search model with heterogeneous firms and workers to explain the dynamics of the wage inequality in the U.S. from 1963-2005. Firms differ in capital intensity (technology content) of the job created and workers differ in their education level. As the match-specific productivity is stochastic, the productivity threshold of employment of each education-job pair matched is endogenously determined. The advance in skill-biased technology increases the productivity of the highly educated workers as well as the capital intensity facing firms when creating high-tech jobs. We argue that in response to the rise in the capital intensity, high-tech firms increase the productivity thresholds of hiring, which leads to wage increment in the high-tech sector, and thus widening the residual wage inequality. Meanwhile, the increase in the productivity of the highly educated worker in the high-tech sector results in higher education premium in both the high-tech and low-tech sectors. Using the historical U.S. data, calibration shows that SBTC can explain the general trends in the education premium and the residual wage inequality from 1963-2005. In particular, it solves the puzzle why the education premium fell but the residual wage inequality grew in the early 1970s.
|Item Type:||MPRA Paper|
|Original Title:||Can't SBTC explain the U.S. wage inequality dynamics?|
|Keywords:||SBTC; Education Premium; Residual Wage Inequality; Capital Intensity|
|Subjects:||J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Labor Contracts
J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
|Depositing User:||Chi Man Yip|
|Date Deposited:||30. May 2011 15:38|
|Last Modified:||12. Feb 2013 08:06|
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