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On the Time-Varying Substitutability between Skilled and Unskilled Workers and the Rise of Wage Inequality in the U.S. 1960-2010

Raul Santaeulalia-Llopis and Jay Hong

No 1305, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: Our premilinary findings suggest that the elasticity of substitution between skill groups displays a large tilted inverse-S pattern. The elasticity slowly raises from 1975 to early 1990s about 3-4 times its original value, and slowly declines to its original value until it abruptly rises again in 2007. This implies associated acceleration/deceleration/accelaration patterns of SBTC. Further, we show that the degree of substitution between skill groups implies the opposite behavior for the complementarity of skills and equipment, that is, this complementarity decreases before 1990s, increases before 2007, and decreases thereafter. Last, we are currently exploring how to rationalize some of these findings using a general equilibrium model of technology diffusion associated where it takes time to learn how to use new technology, there is specificity of human capital, and job polarization. We also plan to extend our analysis to other countries.

Date: 2013
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