We investigate the hypothesis that the combination of three related innovations—1) information technology (IT), 2) complementary workplace reorganization, and 3) new products and services — constitute a signi�cant skill-biased technical change affecting labor demand in the United States. Using detailed �rm-level data, we �nd evidence of complementarities among all three of these innovations in factor demand and productivity regressions. In addition, �rms that adopt these innovations tend to use more skilled labor. The effects of IT on labor demand are greater when IT is combined with the particular organizational investments we identify, highlighting the importance of IT-enabled organizational change. I.

This essay discusses the effect of technical change on wage inequality. I argue that the behavior of wages and returns to schooling indicates that technical change has been skill-biased during the past sixty years. Furthermore, the recent increase in inequality is most likely due to an acceleration in skill bias. In contrast to twentiethcentury developments, much of thr technical change during the early nineteenth century appears to be skill-replacing. I suggest that this is because the increased supply of unskilled workers in the English cities made the introduction of these technologies profitable. On the other hand, the twentieth century has been characterized by skillbiased technical change because the rapid increase in the supply of skilled workers has induced the development of skill-complementary technologies. The recent acceleration in skill bias is in turn likely to have been a response to the acceleration in the supply of skills during the past several decades.

There have been striking postwar changes in the supply and price of skilled labor relative to unskilled labor. The relative quantity of skilled labor has increased substantially, and the skill premium, which is the wage of skilled labor relative to unskilled labor, has grown significantly since 1980. Many studies have found that it is difficult to account for the increase in the skill premium on the basis of observable variables and have concluded that latent "skill-biased technological change" is the main factor responsible for the increase. This paper develops a framework that provides a simple, explicit economic mechanism for understanding skill-biased technological change in terms of observable variables and uses the framework to evaluate the fraction of variation in the skill premium that can be accounted for by changes in observed factor quantities. We use a version of the neoclassical growth model in which the key feature of the aggregate technology is capital-skill complementar...

Bureau and Anne Polivka of the Bureau of Labor Statistics for assistance in using the data, and to Elizabeth Cascio for outstanding research assistance. We also thank David Autor, Daniel Hamermesh, and participants at the SOLE meeting and at the Royal Statistical Society’s “Explanations for Rising Economic Inequality”

Self-selected migration presents one potential explanation for why observed returns to a college education in local labor markets vary widely even though U.S. workers are highly mobile. To assess the impact of self-selection on estimated returns, this paper first develops a Roy model of mobility and earnings where workers choose in which of the 50 states (plus the District of Columbia) to live and work. Available estimation methods are either infeasible for a selection model with so many alternatives or place potentially severe restrictions on earnings and the selection process. This paper develops an alternative econometric methodology which combines Lee's (1983) parametric maximum order statistic approach to reduce the dimensionality of the error terms with more recent work on semiparametric estimation of selection models (e.g., Ahn and Powell, 1993). The resulting semiparametric correction is easy to implement and can be adapted to a variety of other polychotomous choice problems. The empirical work, which uses 1990 U.S. Census data, confirms the role of comparative advantage in mobility decisions. The results suggest that self-selection of higher educated individuals to states with higher returns to education generally leads to upward biases in OLS estimates of the returns to education in state-specific labor markets. While the estimated returns to a college education are significantly biased, correcting for the bias does not narrow the range of returns across states. Consistent with the finding that the corrected return to a college education differs across the U.S., the relative state-to-state migration flows of college- versus high school-educated individuals respond strongly to differences in the return to education and amenities across states.

A large literature documents a substantial rise in U.S. wage inequality and educational wage differentials during the 1980s and early 1990s and concludes that these wage structure changes can be accounted for by shifts in the supply of and demand for skills reinforced by the erosion of labor market institutions supporting low- and middlewage workers. Drawing on an additional decade of data, several “revisionist ” studies reject this consensus to conclude that (1) the rise in wage inequality was an “episodic ” event of the first-half of the 1980s, (2) this rise was mainly caused by a falling minimum wage, and (3) increased residual wage inequality since the mid-1980s reflects the confounding effects of labor force composition. We reexamine these claims using data from the Current Population Survey for 1963 to 2005 and find only limited support. A slowing of the growth of overall wage inequality in the 1990s hides a divergence in the paths of upper-tail (90/50) and lower-tail (50/10) inequality. Uppertail wage inequality has been increasing steadily since 1980 even after adjusting for labor force composition changes. Lower-tail wage inequality increased sharply in the first-half of the 1980s but has flattened or narrowed since the late 1980s. Strong time series correlations of the real minimum wage and upper-tail wage inequality raise questions concerning the causal interpretation of relationships between the minimum wage and both overall and

We conduct a systematic empirical study of cross-sectional inequality in the United States, integrating data from the Current Population Survey, the Panel Study of Income Dynamics, the Consumer Expenditure Survey, and the Survey of Consumer Finances. In order to understand how different dimensions of inequality are related via choices, markets, and institutions, we follow the mapping suggested by the household budget constraint from individual wages to individual earnings, to household earnings, to disposable income, and, ultimately, to consumption and wealth. We document a continuous and sizable increase in wage inequality over the sample period. Changes in the distribution of hours worked sharpen the rise in earnings inequality before 1982, but mitigate its increase thereafter. Taxes and transfers compress the level of income inequality, especially at the bottom of the distribution, but have little effect on the overall trend. Finally, access to financial markets has limited both the level and growth of consumption inequality.

Twenty years ago, on the eve of the first of the great post-Bretton-Woods recessions, unemployment did not appear to be a major problem for advanced economies. Among what would later be dubbed the G7 nations, the United States had the highest unemployment rate at 5.5 percent; but very little of this unemployment was long term, and the extent of short-term unemployment could be rationalized as the inevitable and even desirable result of a dynamic economy. Western Europe had an unemployment rate that, measured on a comparable basis, was only 3 percent. Japan’s unemployment rate was a trivial 1.4 percent, a performance nearly matched by West Germany’s 1.6 percent. Whatever their other economic and social problems, the world’s industrial nations seemed to have left fears of mass unemployment far behind. Today, of course, unemployment is back with a vengeance. In Europe, in particular, the seemingly inexorable rise in the unemployment rate has led to the creation of a new word: Eurosclerosis (Chart 1). The United States has not seen a comparable upward trend—indeed, the unemployment rate in 1989-90 was lower than in 1974, and the current

and participants in the Workshop on Low Income Populations at the Institute for Research on Poverty at the University of Wisconsin-Madison for helpful comments on an earlier draft and Frances Margolin, Hoda Makar, and Simon Hotz for their editorial assistance. We especially wish to thank Robert Willis for numerous helpful discussions during the course of this study. All remaining errors are the responsibility of the authors. 8/27/99 Teenage Childbearing and Its Life Cycle Consequences: Exploiting a Natural Experiment In this paper, we exploit a “natural experiment ” associated with human reproduction to identify the effect of teen childbearing on subsequent educational attainment, family structure, labor market outcomes and financial self-sufficiency. In particular, we exploit the fact that a substantial fraction of women who become pregnant experience a miscarriage (spontaneous abortion) and thus do not have a birth. If miscarriages were purely random and if miscarriages were the only way, other than by live births, that a pregnancy ended, then women, who had a miscarriage as a teen, would constitute an ideal control group with which to contrast teenage mothers.

In skill-biased (de-skilling) technological revolutions learning investments required by new machines are greater (smaller) than those required by preexisting machines. Skill-biased (de-skilling) revolutions trigger reallocations of capital from slow- (fast-) to fast- (slow-) learning workers, thereby reducing the relative and absolute wages of the former. The model of skill-biased (de-skilling) revolutions provides insight into developments since the mid-1970’s (in the 1910’s). The empirical work documents a large increase in the interindustry dispersion of capital-labor ratios since 1975. Changes in industry capital intensity are related to the skill composition of the labor force. (JEL E23 J31 O33) Income and wage inequality is rising in the United States, as well as in several other countries. Started in the 1970’s, this large increase in earnings dispersion results from both absolute gains at the top, and absolute losses at the bottom, of the wage distribution. In fact, even median real earnings have declined. Various empirical explanations have been proposed for these trends, and the jury is still out on the quantitative importance of the different hypotheses. However, a growing consensus attributes a significant role to skill-biased technical change. The Information-Technology Revolution is the obvious suspect. 1 Despite the intensity of the empirical debate, theoretical work on skill-biased technological change has—with few exceptions—lagged behind. In this paper I present a simple model of technological revolutions. I explore the interaction between skills and technology, and offer an interpretation for the changing nature of this interaction. In doing so, I propose an expla-