The skill premium effect of technological change: New evidence from United States manufacturing

Abstract

Using the NBER-CES Manufacturing Industry Database, the authors identify a positive relationship between total factor productivity and the skilled-to-unskilled labour and wage ratios. Highlighting the skill premium for skilled workers, they find that technology has become more favourable to skilled labour since the 1980s. The productivity differentials between skilled and unskilled labour increase relative demand for the former when they are imperfect substitutes. The authors show that the relationships between technology and both ratios are positive in science-based and production-intensive industries, and negative in supplier-dominated industries, suggesting industry heterogeneity in technological knowledge. From a policy perspective, governments should promote science-based innovation.