Forty Years of Decreasing Wage Inequality in France : The Role of Supply and Hidden Skill-Biased Technical Change

This paper relates changes in the high-skilled / medium-skilled relative wage of full-time male wage-earners in France with changes in supply and skill-biased demand shifts, including skill-biased technical change (SBTC). Using annual employer-employee administrative data matched with Census data from 1967 to 2009, we document a strong decrease in this relative wage concomitantly with a strong increase in the relative supply. Estimating a labor supply and demand model, in which experience groups are imperfect substitutes, we show that the strong increase in educational attainment in France has hidden so far the effects of SBTC. The magnitude of these effects is however between half and 100% of what is usually found in the U.S. for the same period. Then, education supply has stabilized since the mid-1990s for young cohorts. Our simulations show that if this stabilization goes on whereas the skill-biased demand keeps increasing or even remains constant, there will be a rise in wage inequality in the next two decades for the cohorts of workers who experienced the supply stabilization. Finally, we discuss why this increase in wage inequality may even be stronger.