>> >Then Feenstra, who was a great
>> >teacher, would pose the problem of greater income inequality (though he
>> >tended not to dwell on the fact that skill premium is based on steeper
>> >wage falls for the so-called unskilled--what a premium); Feenstra, a
>> >rather honest guy, would suggest that economists didn't really know what
>> >the causes were and that skill-biased technological change, which seemed
>> >to be synomous with computers but was so ill-defined that I began to feel
>> >sorry for economists, was really a cop out to explain what the economists
>> >didn't understand.
Feenstra is a great teacher (and thus a real catch for Berkeley)...
The problem is that the way these international-trade-and-wage-differential models are set up only three kinds of factors can affect the distribution of income in a country among capital owners-natural resource owners-skilled workers-unskilled workers.
(i) Changes in demand for the products made in the country (which affect the distribution of income as such changes cause changes in the prices of goods, the mix of goods produced, and thus the demand by businesses for different factors of production).
(ii) Changes in the supply of the factors of production--the amounts of capital, resources, skilled labor, and unskilled labor.
(iii) Changes in the shape of the production function.
The problem is that the first two are observable--you can see how big world demand is for each U.S. product, and you can count how much capital and how many workers there are (and what their experience and education levels are)--but that the third isn't. So the solution is to use your estimates of demand and supply elasticities to decompose how much of changes in income inequality are due to changes in world demand and in relative factor supplies. and then to attribute the rest to changes in the shape of the production function: skill-biased technological change.
But this calling of the residual to "skill-biased technological change" is unwise unless you realize that "skill-biased technological change" is thus everything that does not directly change the supply of factors of production or the demand for U.S. goods. Specifically, "skill-biased technological change" includes things like:
Reagan appointees to the NLRB who reject worker claims of unlawful union-busting.
Worker fear that the high unemployment of the early 1980s might return--and hence worker unwillingness to risk losing nearly *any* job.
The rise of the temporary employment industry.
Falling minimum wages.
As long as you recognize that in this form of economist-speak "technological" means "anything other than demand for goods or the supply of factors of production," little harm is done--but of course not one op-ed writer in 100 realizes that economists have an... elastic definition of "technological."
Brad DeLong
P.S.: The above, of course, does not mean that there is any evidence that increasing educational levels would be a bad thing. In my view there is every reason to suspect that what I think of as the Goldin-Katz-Card-Krueger-Rouse-Kane-Staiger view--the view that our income distribution would improve enormously if the government poured a whole bunch of money into making community college near-universal--is completely correct.
Professor J. Bradford De Long Department of Economics, #3880 University of California at Berkeley Berkeley, CA 94720-3880 (510) 643-4027; (510) 283-2709 voice (510) 642-6615; (510) 238-3897 fax