1
Seminar Worksheet
Labour Demand application (skill-biased technical
change)
Katz and Murphy (1992) “Changes in Relative Wages,
1963-1987: Supply and Demand Factors”
ALL QUESTIONS MUST BE ATTEMPTED BEFORE THE SEMI
...
1
Seminar Worksheet
Labour Demand application (skill-biased technical
change)
Katz and Murphy (1992) “Changes in Relative Wages,
1963-1987: Supply and Demand Factors”
ALL QUESTIONS MUST BE ATTEMPTED BEFORE THE SEMINAR.
Katz Murphy (1992)
A very old paper, but a classic study in this area of labour economics.
Economists were very quick to spot the tide of rising inequality (still in the news
headlines today) and offered a distinct explanation: skill biased technological
change (SBTC). Their key tool for this analysis is the basic demand and supply
framework.
This paper discusses the role of demand (for skill) and supply (of skill, i.e. college
graduates) in changes in the wage structure over the 1970s and 1980s.
Although the SBTC hypothesis is not uncontroversial, the issues about supply
and demand raised in this paper are still very much relevant today. This paper
does a fantastic job of marshalling data and evidence to test the main
hypotheses.
This paper is quite hard going in places. You can ignore much of this more dense
material, and should concentrate your energies on the issues discussed
below.
Read the Introduction.
What happened to the wage structure in the US through the 1980s?2
What are the potential causes of these changes?
What time period will KM analyse?
Read section II.
What kind of data do KM use? What is their key outcome variable?
Read section III.
What does the evidence in Figures I and II tell us?3
Read sections IVB + IVC
What do KM have to say about the role of factor supplies and demands?
Can we explain changes in the wage structure by assuming a stable
demand function and using relative changes in the supply of graduates?
What’s going on in Figure III?
Read pp 54-57; Read parts of section VI: the key estimation / regression
equation is (19) on p.69. Interpret the estimates from this equation. What
does it tell us? What does Figure IV tell us?
Write your conclusion.
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