Can a More Nuanced View of Skill Biased Technological Change Explain the Recent Changes in Wage Inequality ?

Abstract

A secular increase in the demand for high-wage workers driven by skill-biased technological change (SBTC) has difficulties in explaining what happened to US and UK wage inequality in the 1990’s. In particular, SBTC predicts a continuing increase in the relative wage and employment of high wage workers and therefore cannot explain the deceleration of growth in lower tail inequality since the late 1980’s. But this paper suggests that a more nuanced view of SBTC recently proposed by Autor, Levy and Murnane (2003) (ALM) goes some distance towards explaining the absence of further growth in lower tail inequality together with further growth in upper tail inequality in the 1990’s.