Shifts and twists in the relative productivity of skilled labor: Reconciling accelerated SBTC witht the producitivty slowdown
Arnaud Dupuy, ROA, Maastricht University
Skill-biased technical change (SBTC) is usually interpreted in terms of the efficiency parameters of skilled and unskilled labor. This implies that the relative productivity of skilled workers changes proportionally in all tasks. In contrast, we argue that technical changes also affect the curvature of the distribution of relative productivity. Building on Rosen's (1978) tasks assignment model, this implies that not only the efficiency parameters of skilled and unskilled workers change, but also the elasticity of substitution between skil-types of labor. Using dat for the USA between 1963 and 2002, we find significant empirical support for a decrease in the elasticity of substitution at teh end of the 1970s followed by an increase at the end of the 1980s. This pattern of the elasticity of substitution has contributed to the slowdown in labor productivity in the late 1970s through the 1980s and to a speedup in the 1990s.
Date: 27 April-00 0000