Implications of Skill-Biased Technological Change: International Evidence*

Abstract

Demand for less-skilled workers plummeted in developed countries in the 1980s. In open economies, <it>pervasive</it> skill-biased technological change (SBTC) can explain this decline. SBTC tends to increase the domestic supply of unskill-intensive goods by releasing less-skilled labor. The more countries experiencing a SBTC, the greater its potential to decrease the relative wages of less-skilled labor by increasing the <it>world</it> supply of unskill-intensive goods. We find strong evidence for pervasive SBTC in developed countries. Most industries <it>increased</it> the proportion of skilled workers <it>despite</it> generally rising or stable relative wages. Moreover, the <it>same</it> manufacturing industries simultaneously increased demand for skills in <it>different</it> countries. Many developing countries also show increased skill premiums, a pattern consistent with SBTC.