slides_08_KSC_Polarization.pdf

slides_08_KSC_Polarization.pdf - Econ 473 Class 8 1 A...

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Econ 473 Class 8 1. A source of skill-biased technical change: capital-skill complementarity 2. Polarization 3. Presentations 3, 5, 6
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A source of skill-biased technical change: capital-skill complementarity
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Outline, wage inequality 1. X The evolution of wage inequality, with a particular focus on the role of skill. 2. X What determines skill supply/the distribution of skills in the population? Some theory. 3. X A simple framework of skill supply and demand. 3.1 X Theory (KM, AKK) 3.2 X Regression results (AKK) 4. Institutional reasons: 4.1 X Minimum wages 5. Drivers of skill-biased technical change 5.1 capital-skill complementarity 5.2 polarization (a more recent, more nuanced variant)
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Capital-skill complementarity KORV: Krusell, Ohanian, R´ ıos-Rull and Violante (2000). Econometrica 68(5), 1029-1053. read, except “Stochastic Specification” and its three subsections.
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Capital-skill complementarity: introduction I KM and AKK showed that skill-biased technical change can help explain the trend in the college premium. I They identify its effect residually: a trend does the job. I But what exactly is it?
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Capital-skill complementarity: idea AKK: skilled labor becomes gradually more productive over time, maybe due to technical change: Y t = h α ( A t N c t ) σ - 1 σ + (1 - α )( B t N h t ) σ - 1 σ i σ σ - 1 w c t w h t = α 1 - α A t B t σ - 1 σ N c t N h t - 1 σ given relative supply, w c t w h t rises if g A > g B (since σ > 1).
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Capital-skill complementarity: idea AKK: skilled labor becomes gradually more productive over time, maybe due to technical change: Y t = h α ( A t N c t ) σ - 1 σ + (1 - α )( B t N h t ) σ - 1 σ i σ σ - 1 w c t w h t = α 1 - α A t B t σ - 1 σ N c t N h t - 1 σ given relative supply, w c t w h t rises if g A > g B (since σ > 1). KORV: I A , B are unobservable (like Solow residual). I But: They could capture other, observable factors. I In particular: the role of capital.
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Capital-skill complementarity: idea Suppose: I Production uses both types of labor, plus capital . I The two types of labor use capital differently: I Low-skill labor and capital are substitutes. I High-skill labor and capital are complements. Higher K raises MPN c relative to MPN h .
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Capital-skill complementarity: idea Suppose: I Production uses both types of labor, plus capital . I The two types of labor use capital differently: I Low-skill labor and capital are substitutes. I High-skill labor and capital are complements. Higher K raises MPN c relative to MPN h . I Advantage of the setting: I Capital and investment can be measured Can test the hypothesis: Does the observed pace of capital accumulation fit with the evolution of the skill premium? instead of backing out SBTC as a residual.
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Capital-skill complementarity: a simple example Y t = ( K t + N h t ) α ( N c t ) 1 - α , α (0 , 1) MPN h t = α ( K t + N h t ) α - 1 ( N c t ) 1 - α MPN c t = (1 - α )( K t + N h t ) α ( N c t ) α MPN c t MPN h t = 1 - α α K t + N h t N c t I We saw before: without capital, the Cobb-Douglas form implies that the skill premium only depends on α and skill quantities.
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  • Fall '17
  • MarkusPoschke

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