Cover IMF Working Papers
The Elasticity of Substitution Between Skilled and Unskilled Labor in Developing Countries: A Directed Technical Change Perspective
Author: Mr. Alberto Behar
Series:
IMF Working Papers
Volume/Issue:
Volume 2023: Issue 165
Language:
English
Publication Date:
11 Aug 2023
DOI:
https://doi.org/10.5089/9798400250514.001
ISBN:
9798400250514
ISSN:
1018-5941
Pages:
40
Keywords:
Skill-biased technical change; elasticity of substitution; skill premium; inequality; growth accounting; consensus estimates of the elasticity; wage inequality; wage premium; coefficient estimate; Skilled labor; Wages; Unskilled labor; Central America; South America; Caribbean; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Download PDF (1.6 MB) Download Epub
We develop a model of endogenous skill-biased technical change in developing countries. The endogenous response to a rise in skill supply counters the traditional substitution effect and dampens its role in reducing wage inequality. The model re-enforces consensus estimates of the elasticity of substitution between more/less educated workers by reconciling dispersed existing estimates. It also rationalizes estimates that were hitherto deemed implausible or model-inconsistent. We produce new estimates for developing countries with a novel global panel (finding values at or just above 2) and with Latin American data that facilitates analysis of dynamics (which reduce estimates to 1.7-1.8). We therefore shed new light on a parameter that is crucial for inequality, growth, and other key macroeconomic questions.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund