Skills Prices, Occupations and Changes in the Wage Structure for Low Skilled Men

Abstract

This paper proposes and estimates a model of occupational choice with multi- dimensional skills, time-varying skill prices and labor market frictions to understand the evolution of the wage structure since 1979 for low skilled men. A worker’s multi- dimensional skills are exploited differently across different occupations. We allow for a rich specification of technological change which has heterogenous effects on different occupations and different parts of the skill distribution. We estimate the model combining three datasets: (1) O*NET, to measure skill intensity across occupations, (2) NLSY, to identify life-cycle supply effects, and (3) CPS, to estimate the evolution of skill prices and occupations over time. We find that a) reallocation of labor across occupations is hard to understand with a competitive model, b) occupational composition is substantially less important than within-occupation skill prices in explaining both the evolution of both medan wages and inequality, c) lifecycle wage growth depends on a combination of different skills, d) the premium to interpersonal skills has gone up most sharply for these workers. (joint work with Christopher Taber (University of Wisconsin Madison))