Skill premium in chile: Studying skill upgrading in the south

Type Working Paper
Title Skill premium in chile: Studying skill upgrading in the south
Publication (Day/Month/Year) 2010
The evolution of the skill premium (i.e., the wage dierential between skilled
and unskilled workers) has interest from at least two perspectives: it is a rough
measure of inequality among workers of dierent qualications and provides information
on the characteristics of the development process of the economy. In
this paper, I investigate empirically the evolution of the skill premium in Chile
over the last 40 years. After some
uctuations in the 1960s and 1970s, the skill
premium increased in the 1980s and has remained roughly constant since then.
The data suggest that this evolution is an outcome of a signicant increase in
relative demand for skilled workers in the 1980s and 1990s and a sizeable increase
in the relative supply in the 1990s. Sectoral evidence shows that, after controlling
for sector and time eects, (i) the relative demand increased faster in the same
industries in Chile than in the US and (ii) the correlation is stronger for tradable
industries and non-tradable industries that are intensive in imported capital, as
expected. This result is consistent with a number of theories that link skill upgrading
in developed and developing countries. To try to disentangle among these
theories, I present time series evidence suggesting that, after controlling for other
determinants of skill premium, not only there is a positive correlation between skill
premium in Chile and in the US but also the size of the correlation is consistent
with the Acemoglu (2003a) model of endogenous technological choice in which
new technologies are produced in developed countries (like the US) and adopted
in developing economies (like Chile).

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