Skill-Neutral Shocks and Institutional Changes: Implications for Productivity Growth and Wage Dispersion

This paper studies skill-neutral technological changes in an economy where workers differ with respect to their abilities to acquire skills, implying increasing marginal costs of educating the work force. Our main result is that productivity slowdown and increasing wage dispersion can be obtained without trade or skill-biased technological changes. Moreover, when taking into account institutional changes that have occurred over the latest decades we can generate the time series pattern of wages and productivity in the U.S. and Europe as a responce to neutral technology shocks. Finally, our approach indicates when and why skill-biased technology is likely to be the explanation for the above developments.