TECHNOLOGY AND CHANGES IN SKILL STRUCTURE: EVIDENCE FROM SEVEN OECD COUNTRIES

TECHNOLOGY AND CHANGES IN SKILL STRUCTURE: EVIDENCE FROM SEVEN OECD COUNTRIES

November 1998 | STEPHEN MACHIN AND JOHN VAN REENEN
This paper examines the relationship between skill structure and technical change across seven OECD countries: the United States, Denmark, France, Germany, Japan, Sweden, and the United Kingdom. It investigates whether R&D intensity, a directly observable measure of technical change, is associated with the increasing importance of skilled workers in wage bills and employment. The findings show a significant association between skill upgrading and R&D intensity in all seven countries, indicating that skill-biased technical change is an international phenomenon that has increased the relative demand for skilled workers. The paper analyzes data on wage bills, employment, and R&D intensity across industries. It finds that skill upgrading has occurred primarily within industries rather than between them, and that there is a strong complementarity between human capital and new technology. The results are robust to alternative measures of skill and technology, and the paper finds that trade measures, such as the share of imports from less developed countries, are not significant in explaining changes in within-industry skill structures. The paper also considers the potential endogeneity of R&D and international spillovers. It finds that R&D is a robust measure of technology, and that the results are not significantly affected by the inclusion of trade variables or the use of instrumental variables. The paper also finds that spillovers from international R&D are more significant in smaller economies like Japan and the Scandinavian countries than in the United States and the United Kingdom. Overall, the paper concludes that skill-biased technical change has had a clear effect on increasing the relative demand for skilled workers across countries. However, it also notes that other factors, such as changes in labor market institutions and international trade, may also play a role in explaining changes in skill structures. The paper emphasizes the importance of considering both supply and demand-side factors in understanding changes in labor market structures.This paper examines the relationship between skill structure and technical change across seven OECD countries: the United States, Denmark, France, Germany, Japan, Sweden, and the United Kingdom. It investigates whether R&D intensity, a directly observable measure of technical change, is associated with the increasing importance of skilled workers in wage bills and employment. The findings show a significant association between skill upgrading and R&D intensity in all seven countries, indicating that skill-biased technical change is an international phenomenon that has increased the relative demand for skilled workers. The paper analyzes data on wage bills, employment, and R&D intensity across industries. It finds that skill upgrading has occurred primarily within industries rather than between them, and that there is a strong complementarity between human capital and new technology. The results are robust to alternative measures of skill and technology, and the paper finds that trade measures, such as the share of imports from less developed countries, are not significant in explaining changes in within-industry skill structures. The paper also considers the potential endogeneity of R&D and international spillovers. It finds that R&D is a robust measure of technology, and that the results are not significantly affected by the inclusion of trade variables or the use of instrumental variables. The paper also finds that spillovers from international R&D are more significant in smaller economies like Japan and the Scandinavian countries than in the United States and the United Kingdom. Overall, the paper concludes that skill-biased technical change has had a clear effect on increasing the relative demand for skilled workers across countries. However, it also notes that other factors, such as changes in labor market institutions and international trade, may also play a role in explaining changes in skill structures. The paper emphasizes the importance of considering both supply and demand-side factors in understanding changes in labor market structures.
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[slides and audio] Technology and Changes in Skill Structure%3A Evidence from Seven OECD Countries