Technological change and wages: An interindustry analysis

Previous research has shown that wages in industries characterized by higher rates of technological change are higher. In addition, there is evidence that skill-biased technological change is responsible for the dramatic increase in the earnings of more educated workers relative to less educated workers that took place during the 1980s. In this paper, we match a variety of industry-level measures of technological change to a panel of young workers, observed between 1979 and 1993 (NLSY), and examine the role played by observed and unobserved heterogeneity in explaining the positive relationships between technological change and wages and between technological change and the education premium. We find that the wage premium associated with technological change is primarily due to the sorting of more able workers into those industries, and this premium is unrelated to any sorting based on gender or race. In addition, the education premium associated with technological change is the result of a greater demand for the innate ability or other unobserved characteristics of more educated workers.