Technology, Skill and the Wage Structure

This paper studies the wage structure in a simple general equilibrium model with heterogeneous workers and technologies. The main contribution is to characterize the effects of improvements in a limited set of technolgies. Such changes have employment, output, price and wage effects that "ripple out" through the whole economy. Output increases and price falls for products/tasks that are directly affected. Employment at these tasks expands to a group of more skilled workers. Tasks higher up the technology ladder engage in "skill upgrading," but employment falls, so output declines, and prices and wages rise. Under a mild restriction, all of theses effects are mirrored at tasks farther down the technology ladder, where "skill downgrading" occurs. The output, price and wage changes are damped for more distant tasks, both above and below the set that is directly affected. A large technology boost for a small set of tasks at the top of the distribution produces wage effects that are qualitatively similar to those seen in the U.S. over the period 1982-2012.