Structural Change and the Skill Premium in a Global Economy

We develop a multi-country general equilibrium model with structural change to investigate the factors affecting the global changes in the skill premium between 1997 and 2007. Trade and technological change increase the skill premium by inducing reallocations to skill-intensive sectors. We apply our three-sector framework to 37 countries, and the model accounts completely for countries' trade, production, consumption, and skill premium in terms of different types of fundamental shocks. Technological changes, both skill biased and Hicks neutral, account for most of the increases in the skill premium. The effects of Hicks-neutral total factor productivity growth act through structural change