We study how technological change  shape the wage structure. Controlling for institutional and demographic changes, we examine patterns of skill prices and real wages between 1961-2017. Return to schooling is positively correlated with technological change. Return to experience is negatively correlated with technology. To explain these findings, we extend the capital-skill complementarity framework to incorporate schooling, experience, vintage capital equipment and new capital equipment. Our model generates the observed profiles of skill prices if vintage-capital-skill complementarity assumptions hold. We structurally estimate the model and show that vintage-capital-skill complimentarity explains the general patterns and much of the variation of returns to skills. Finally, we construct a stochastic dynamic general equilibrium model that allows for vintage-capital-skill complementarity in production. Our extended model can account for the cyclical behavior of the experience premium and education premium, a model without such complimentary features cannot.


Presented by Gonzalo Castex, University of New South Wales.

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