Technological change and the labor market

The leading explanation for the increase in the U.S. college premium over the last 40 years is aggregate skill biased technological change (SBTC). In Chapter 1 I study whether taking into account the economy's sectoral composition can yield different conclusions about the nature technological change. I estimate a two-sector general equilibrium model which fits the U.S. aggregate and sectoral trends in relative wages, prices and employment during 1963-2005. The estimates reveal that in the growing skill intensive services sector technological progress has been unskilled biased, i.e., average efficiency of less skilled workers increased faster than it did for skilled workers. In the unskilled intensive goods sector in contrast, the opposite bias is estimated. Convolution of these two forces leads to inferring SBTC at the aggregate level, in spite of the diverging trends in goods and services. Faster efficiency growth of unskilled versus skilled workers in services is consistent with a shift in the mix of occupations: unskilled workers in services have continuously re-allocated into more computer complementary occupations to a greater extent than skilled workers. In contrast, the occupational mix in the goods sector moderately shifted in the opposite direction, which is consistent with faster productivity growth for skilled workers.In Chapter 2, I examine the evolution of labor market outcomes in the U.S. financial sector. Over the past 60 years, this sector has grown linearly from 2.3% to 7.7% of GDP, but this statistic hides a dramatic change in the composition of skills and occupations. Staring in the early 1980s, the financial sector started paying higher wages and hiring more skilled individuals relative to the rest of economy. These trends reflect a shift away from low skill jobs and towards occupations that are market oriented activities within the sector. The evidence suggests that technological and financial innovations both played a role in this transformation. I also document an increase in relative wages, controlling for education, which partly reflects an increase in unemployment risk: finance jobs used to be safer than other jobs in the private sector, but this is no longer the case.