Sbtc, Sbit and the Supply of Human Capital, G. Conti and F. Pastore Sbtc, Sbit and the Supply of Human Capital

This paper aims to survey the theoretical and empirical literature on increasing wage and employment differentials in favour of high skill workers and against low skill workers. Much literature stresses the role of demand shifts against low skill workers, caused by skill biased technical change (SBTC) and by sector biased international trade (SBIT). Moreover, demand shifts with characteristics similar to SBIT are sometimes attributed to changes in the composition of demand for products of different skill intensity. It is shown that while SBTC tends to reduce both the employment and wages of low skill workers, SBIT tends to affect negatively (positively) wages (employment). Demand factors do not seem to be the only factor explaining increasing wage differentials. Bringing supply side factors to the fore actually helps explaining the evolution over time of wage and employment differentials by skill, but leaves unexplained cross country differences, especially those between the high wage dispersion of the US labour markets contrasted with the high EU unemployment level. Different labour market institutions could explain such differences. Much research is on-going on the employment effects of flexible versus rigid labour market institutions. On an empirical ground we show that the now traditional approach of disentangling within and between differences in wage changes is under revision, as it suffers from various shortcomings. Moreover, it ignores the supply side. Panel data analysis and different types of wage equations are the framework to consider contemporaneous demand and supply side factors, without neglecting the role of differences in labour market institutions. JEL Classification: F11, J24, J31, J51, O33