Skill Biased Technical Change and Misallocation. A Unified Framework and a country-sector exercize

Michele Battisti, Massimo Del Gatto and Christopher Parmeter

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Due to strict reliance on perfectly competitive labor markets, standard approaches estimating skill biased technical change (SBTC) conflate ‘true’ SBTC and labor market distortions preventing firms from choosing the efficient skilled to unskilled labor ratio. To overcome this limit, we present a unified framework to estimate SBTC, net of factor accumulation (FA) effects, and quantify the discrepancy between skilled to unskilled marginal rate of technical substitution (MRTS) and wage ratio (i.e., relative misallocation). The methodology takes advantage of recent developments in nonparametric estimation methods (i.e., generalized kernel regression) that allow us to estimate the marginal productivity of inputs at the country-sector level directly from country-sector data. Using 1995-2005 data, we find a 3% yearly growth rate for the MRTS between skilled and unskilled labor and show such change to be mostly driven by SBTC, rather than FA. We then show that MRTS changes does not match the evolution of the wage ratios (quite stable over time), thus yielding substantial heterogeneity in terms of relative misallocation patterns, for which we report a 6% increase, overall (1.5% in manufacturing, against a rough 12% in Non-Manufacturing sectors). Finally, we show evidence that relative misallocation increased less in country-sectors in which it was larger at the beginning of the period and grew more in country-sectors characterized by: higher skill-intensity; lower bargaining power of skilled over unskilled workers; lower FA effects.

Keywords: Skill Biased Technical Change; Misallocation; Production Function Estimation; Technology; Nonparametric Estimation (search for similar items in EconPapers)
JEL-codes: C14 D24 O41 O47 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-ecm and nep-for
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:19-08

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