Working Paper: CEPR ID: DP13785
Authors: Sergio Rebelo; Nir Jaimovich; Arlene Wong; Miao Zhang
Abstract: We study the impact on the skill premium of increases in the quality of goods consumed by households (“trading up”). Our empirical work shows that high- quality goods are more intensive in skilled labor than low-quality goods and that household spending on high-quality goods rises with income. We propose a model consistent with these facts. This model accounts for the past rise in the skill premium with more plausible rates of skill-biased technical change than those required by the canonical model. It also implies that an expansion of the skilled labor force reduces the skill premium by much less than in the canonical model.
Keywords: quality; skill premium; growth; inequality
JEL Codes: J2; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Quality of goods consumed (D12) | Skill premium (J24) |
| Income (D31) | Quality of goods consumed (D12) |
| Quality of goods consumed (D12) | Demand for skilled labor (J24) |
| Income (D31) | Demand for skilled labor (J24) |
| Expansion of skilled labor force (J24) | Skill premium (J24) |