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The race between education and technology in Chile and its impact on the skill premium

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  • Campos-González, Jorge
  • Balcombe, Kelvin

Abstract

While studies using pre-2000 data for Chile implied that technological change drives the skill premium evolution, post-2000 data suggests that the supply of skilled labour expansion has reduced this premium. In contrast, literature shows a consistent link between technology and the growing demand for skilled labour, despite educational improvements, leading to skill premium increases. We examine these interactions under the race between education and technology model (RBET) for Chile between 1980 and 2018 considering the inconsistent findings (e.g., negative elasticities) reported by past studies. We also find inconsistencies using cointegration techniques. Alternatively, we apply an Unobserved Component Model using a Bayesian estimation that enforces the required economic and theoretical conditions. We find that, before the 2000s, the technological change dominated. However, in the 2000s, the demand was surpassed by educational supply increases, reducing the premium. The estimated elasticity of substitution between skilled and unskilled labour is 6.5, implying that both are more substitutable than commonly thought.

Suggested Citation

  • Campos-González, Jorge & Balcombe, Kelvin, 2024. "The race between education and technology in Chile and its impact on the skill premium," Economic Modelling, Elsevier, vol. 131(C).
  • Handle: RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323004285
    DOI: 10.1016/j.econmod.2023.106616
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    More about this item

    Keywords

    Skill-biased technological change; Skill premium; Elasticity of substitution; Technology; Education; Skilled labor;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • N36 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Latin America; Caribbean
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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