Skill Premium in Chile: Studying the Skill Bias Technical Change Hypothesis in the South

The evolution of the skill premium (i.e., the wage differential between skilled and unskilled workers) in an economy has interest from at least two perspectives: the evolution of the skill premium is a rough measure of inequality among workers of different qualifications and provides information on the characteristics of the development process of the economy. In this paper, I investigate empirically the evolution of the skill premium in Chile over the last 40 years. After some fluctuations in the 1960s and 1970s, the skill premium increased in the 1980s and has remained roughly constant since then. A simple accounting framework suggests that this evolution is an outcome of a significant increase in relative demand for skilled workers in the 1980s and 1990s and a sizeable increase in the relative supply in the 1990s. Next, I explain the evolution of the relative demand for skilled labor in Chile in the context of the Acemoglu (2003a) model of endogenous technological choice where new technologies are produced in developed countries (like the US) and adopted in developing economies (like Chile). Macro evidence and sectoral evidence confirm the main theoretical prediction of the model: patterns of skill upgrading in Chile have followed the evolution of the same variable in the US.