Skill-Biased Tech Change

What is Tinbergen’s race between education and tech

Income inequality depends on the balance between the rate of technological progress and the rate at which the workforce becomes more educated (upskilled).

• if tech advances faster than the education demand for skilled workers, income inequality will likely increase as high-skill jobs outpace the supply of educated workers.

• The opposite happens if education keeps pace with or exceeds technological advancement, leading to a more equitable income distribution.

Katz and Murphy 1992 aim

• test tinbergen hypothesis

• how much rise in wage inequality due to relative changes in supply and also relative changes in demand

Kats and Murphy main results

Skill-biased technological change was the main driver of rising wage inequality in the U.S. during 1963–1987, not changes in labor supply.

• demand more important than supply

Limitations of Katz and Murphy

• no separation between skill and task, skilled can be at different levels, Ai worker vs data entry

• Tech may never replace workers

  • tech could complement workers

• Decrease in real wages for some workers means a tech regress how can that work.

What is polarization

• u shaped pattern in employment across skill distribution

  • high skill and low skill rise

  • middle skill fall