The paper studies the dynamics of college wage premium across OECD countries. It reports that countries which experienced college wage premium growth higher than that of other countries also witnessed a higher growth of the skills supply ten years earlier. Regression results suggest that this pattern could not be explained by the theory of global Directed Technological Change, increase in trade or the fall of trade-unions. However, it can be explained with the model of endogenous technology choices: the growth of skilled workers motivates firms to pick more skill-biased production methods. I calibrate the model using the results of the dynamic panel regression. Endogenous technology choices can explain one third of the total increase in wage inequality in the OECD. One implication is that any policy that affects the supply of skilled workforce at the country level will have an impact on the skill-bias of equilibrium technology and wage inequality dynamics.
Institute for Structural Research (IBS); Faculty of Economic Sciences, University of Warsaw
