TAILIEUCHUNG - Reinterpreting The Skill-biased Technological Change Hypothesis

.labor, to shore up union power, or to restrict the entry of low-skilled workers into the . As the growth in the college premium slowed in the mid-1990s, education- and training-related policies received less attention, but in light of more recent upturns, they may regain popularity. Studies testing the SBTC theory have produced mixed results. The early case in support of the hypothesis was based primarily on the observation of concurrent trends at the macro leve | WORKING P A P E R Reinterpreting the Skill-biased Technological Change Hypothesis A Study of Technology Firm Size and Wage Inequality in the California Hospital Industry CASSANDRA M. GUARINO WR-316 November 2005 This product is part of the RAND Labor and Population working paper series. RAND working papers are intended to share researchers latest findings and to solicit informal peer review. They have been approved for circulation by RAND Labor and Population but have not been formally edited or peer reviewed. Unless otherwise indicated working papers can be quoted and cited without permission of the author provided the source is clearly referred to as a working paper. RAND s publications do not necessarily reflect the opinions of its research clients and sponsors. RAND is a registered trademark. RAND LABOR AND POPULATION Abstract This study examines data from the 1983-1993 California hospital industry to test whether observed patterns of wage inequality growth can be explained by the skill-biased technological change hypothesis. The study finds little evidence of a direct link between technological inputs and skill premia particularly when growth in firm size is taken into account. The findings challenge the notion that technological change is skill biased and suggest that economies of scale permit hospitals to compete for clientele on the basis of labor force quality. Since technological expenditures often promote consolidation a reassessment of the relationship between wages and technology is suggested. 2 The wage premia associated with higher levels of skill rose notably throughout the 1980s and during particular periods in the 1990s. The college premium the percentage by which the earnings of college graduates exceed those of high school graduates rose from approximately 38 percent in 1979 to 73 percent in 1992 after which it slowed through 1997 increased again in the last part of the decade to 78 percent in 2001 and then leveled off Despite concern

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