Is inequality an inevitable by-product of skill-biased technical change?

ABSTRACT

This article examines trends in relative wages between high- and medium-skilled workers and between medium- and low-skilled workers in Finland, Germany, Italy, South Korea and the US over the period 1970–2005. It is found that there are large differences in the evolution wage inequality across the countries in our sample, with some countries showing a long-run upward trend in relative wages (such as the US, Germany and Italy) and others showing a long-run downward trend (such as Finland and Korea). The main conclusion from our results is that inequality is not an inevitable by-product of technological change.

KEYWORDS:

• Wage inequality
• technical change
• labor supply

JEL CLASSIFICATION:

• J23
• J31
• O30

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The EU KLEMS data set uses a unified approach that makes micro data sets from national sources comparable (see O’Mahoney and Timmer 2009).

² It should be noted that earlier studies used efficiency units (rather than hours) to measure labour supply. To test whether there is a difference between the use of efficiency units and the use of hours worked, we experimented with data from Acemoglu and Autor (2011) for the US and found that the results are qualitatively and quantitatively nearly identical.