SMU SOE Economics Lecture Series (Dec 16, 2021, 9.00am-10.30am): Skill Prices, Occupation Sorting and Wage Inequality

Skill Prices, Occupation Sorting and Wage Inequality

This paper studies the effect of the change in occupational structure on wages for low skilled men. We develop a model of occupational choice in which workers have multi-dimensional skills that are exploited differently across different occupations. We allow for a rich specification of technological change which has heterogenous effects on different occupations and different parts of the skill distribution. We estimate the model combining four datasets: (1) O*NET, to measure skill intensity across occupations, (2) NLSY79, to identify life-cycle supply effects, (3) CPS (ORG), to estimate the evolution of skill prices and occupations over time, and (4) NLSY97 to see how the gain to specific skills has changed and to identify change in preferences. We have three main findings. First, the reallocation away from manual jobs towards services and changes in the wages structure were driven by demand factors while the supply of skills, selection into different occupations and changes in preferences played lesser role. Second, frictions play an important role in preventing wages in traditional blue collar occupations from falling substantially relative to other occupations. Finally, while we see an increase in the payoff to interpersonal skills, manual skills still remain the most important skill type for low educated males.