Working Paper: NBER ID: w25931
Authors: Nir Jaimovich; Sergio Rebelo; Arlene Wong; Miao Ben 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: Skill Premium; Quality of Goods; Income Inequality; Household Consumption
JEL Codes: J20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Increase in Household Income (D19) | Increase in Quality of Goods Consumed (D11) |
| Higher Quality Goods (L15) | Increased Demand for Skilled Labor (J24) |
| Increase in Quality of Goods Consumed (D11) | Increase in Demand for Skilled Labor (J24) |
| Increased Demand for Skilled Labor (J24) | Rise in Skill Premium (J24) |