Economists attribute some of this divergence to the so-called "skill-biased technical changes
" that occurred throughout the 1980s, along with labor-market rigidities (Blanchard, 2006; Ljungvist and Sargent, 2008).
Numerous studies have confirmed skill-biased technical change as a source of asymmetric shifts in labor demand.
Labor demand shifts attributed to skill-biased technical change are well- documented in the literature, and within each period, our time trend results are consistent with these broader findings.
Thus, overall, the best explanation for the increase in wage inequality appears to be skill-biased technical change. But there are some potential challenges to this theory.
If skill-biased technical change is causing growing wage inequality in the United States, they ask, why isn't wage inequality also growing rapidly in Western Europe since all developed countries have access to basically the same technology?
Direct evidence supporting the skill-biased technical change argument is slim, however, because most studies using aggregate-level data do not contain direct measures of the concept (Topel 1997:60).
First, I use original establishment-level data to examine the concept of skill-biased technical change by measuring how business and human resource strategies influence the use of technology and human capital and, in turn, affect wages.
The hypothesis of skill-biased technical change cannot be made internally consistent for any value of the elasticity of substitution, although high values of the elasticity bring the rate of skill bias close to the cutoff level.
Nor can skill-biased technical change by itself explain the relative earnings and employment levels of college graduates, because of the relatively low level of total factor productivity growth.
If various new machines and production methods came into being when called forth by profit opportunities, it is also likely that further skill-biased technical change
and an acceleration in skill bias are also, at least in part, responses to profit incentives.
Differences between the 6" and 8" fabs in the distribution of employment are consistent with skill-biased technical change
. The more extensive automation in the 8" fabs had not led to a decline in overall employment, but it had led to a shift in the occupational distribution.
In fact, it would be the same as before the internalizing, skill-biased technical changes
if the following condition is satisfied: [omega]'(1 - q) / (2 - q) [less than or equal to] [omega] [less than or equal to] [omega]'(2 - q) / (1 - q).