Technological Change and the Wage Structure

Abstract

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.

Presenter

Presented by Gonzalo Castex, University of New South Wales.