Working Paper: NBER ID: w26863
Authors: David Kunst; Richard B. Freeman; Remco Oostendorp
Abstract: Firms hire workers to undertake tasks and activities associated with particular occupations, which makes occupations a fundamental unit in economic analyses of the labor market. Using a unique dataset on pay in identically defined occupations in developing and advanced countries, we find that in most countries occupational skill premia narrowed substantially from the 1950s to the 1980s, then widened through the 2000s, creating a U-shaped pattern of change. The narrowing was due in part to the huge worldwide increase in the supply of educated workers. The subsequent widening was due in part to the weakening of trade unions and a shift in demand to more skilled workers associated with rising trade. The data indicate that supply, demand, and institutional forces are all drivers of occupational skill premia, ruling out simple single factor explanations of change. The paper concludes with a call for improving the collection of occupational wage data to understand future changes in the world of work.
Keywords: Occupational Skill Premia; Labor Market; Education; Trade; Union Density
JEL Codes: F1; I2; J2; J3; J5; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Educational expansion (I24) | Decrease in wage differentials between skilled and unskilled occupations (F66) |
| Weakening of trade unions (J58) | Increase in wage differentials for less skilled workers (J31) |
| Changes in trade orientation (F19) | Rising wage differentials (J31) |
| Changes in educational attainments (I24) | Effects of changes in occupational labor supply on wages (J29) |
| GDP per worker (O49) | Isolate effects of supply changes from demand shifts (H31) |