Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 486: Implications of Skill-Biased Technological Change: International Evidence

Eli Berman (), John Bound and Stephen Machin
Additional contact information
Eli Berman: Department of Economics, Boston University and NBER
John Bound: Department of Economics, University of Michigan and NBER
Stephen Machin: Department of Economics, University College London, and Centre for Economic Performance, London School of Economics

Abstract: Demand for less skilled workers decreased dramatically in the US and in other developed countries over the past two decades. We argue that pervasive skill biased technological change rather than increased trade with the developing world is the principal culprit. The pervasiveness of this technological change is important for two reasons. First, it is an immediate and testable implication of technological change. Second, under standard assumptions, the more pervasive the skill biased technlogical change the greater the increase in the embodied supply of less skilled workers and the greater the depressing effect on their relative wages through world goods prices. In contrast, in the Heckscher-Ohlin model with small open economies, the skill-bias of local technological changes do not affect wages. Thus, pervasiveness deals with a major criticism of skill-biased technological as a cause. Testing the implications of pervasive, skill biased technological change we find strong supporting evidence. First, across the OECD, most industries have increased the proportion of skilled workers employed despite rising or stable relative wages. Second, increases in demand for skills were concentrated in the same manufacturing industries in different developed countries.

Keywords: Wages; Skill; Technology; Trade

JEL-codes: F10; J31; O30

35 pages, July 1, 1997

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