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Wednesday, March 09, 2011

Inequality and the Distribution of Human Capital

Does skill-biased technological change explain inequality?:

The Wage Premium Puzzle and the Quality of Human Capital, by Milton H. Marquis, Bharat Trehany, and Wuttipan Tantivongz: Abstract The wage premium for high-skilled workers in the United States, measured as the ratio of the 90th-to-10th percentiles from the wage distribution, increased by 20 percent from the 1970s to the late 1980s. A large literature has emerged to explain this phenomenon. A leading explanation is that skill-biased technological change (SBTC) increased the demand for skilled labor relative to unskilled labor. In a calibrated vintage capital model with heterogenous labor, this paper examines whether SBTC is likely to have been a major factor in driving up the wage premium. Our results suggest that the contribution of SBTC is very small, accounting for about 1/20th of the observed increase. By contrast, a gradual and very modest shift in the distribution of human capital across workers can easily account for the large observed increase in wage inequality.

And what might explain the change in the distribution of human capital? From the conclusions:

factors that alter the skill distribution of the workforce appear to be a promising avenue of future research, since relatively small changes in the skill distribution can have large effects on the wage premia. Such factors could include immigration, population growth, or deficiencies in the educational system in failing to provide job-relevant training. At the high end of the skill distribution, endogenous increases in human capital may be taking place in locations such as Silicon valley.

    Posted by on Wednesday, March 9, 2011 at 11:07 AM in Academic Papers, Economics, Income Distribution | Permalink  Comments (15)


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