The wage premium puzzle and the quality of human capital

Milton Marquis, Bharat Trehan () and Wuttipan Tantivong

International Review of Economics & Finance, 2014, vol. 33, issue C, 100-110

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% 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.

Keywords: Wage premium; Skill-biased technical change; Vintage capital; Heterogenous labor supply (search for similar items in EconPapers)
JEL-codes: E24 J24 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Working Paper: The wage premium puzzle and the quality of human capital (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:33:y:2014:i:c:p:100-110

DOI: 10.1016/j.iref.2014.03.010

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