The Role of Sectoral Composition in the Evolution of the Skill Wage Premium

Sara Moreira
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Sara Moreira: Northwestern University

No 850, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: The main contribution of this paper is to consider sector-specific productivity and factor-specific productivity effects in the analysis of the evolution of the skill wage premium. I use data on wages and employment for 30 industries that compose the U.S. economy to examine the evolution of employment and skill-intensity by sector. To guide the empirical work, I construct a simple two-sector model that explores the role of heterogenous technology in the process of structural change. I show that the college premium depends crucially on industry-specific elasticities of substitution between skilled and unskilled labor and on the nature of the factor augmenting technology. The model allows me to derive closed form expressions for the aggregate elasticity of substitution and estimate its evolution. I find that the degree of skilled-unskilled labor substitutability is diminishing as sectors with low flexibility (e.g. services) are becoming increasingly important.

Date: 2018
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:850

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