The Supply of Skill and Endogenous Technical Change: Evidence from a College Expansion Reform

Abstract

We examine the labor market consequences of an exogenous increase in the supply of skilled labor in several cities in Norway, resulting from the construction of new colleges in the 1970s.We find that skilled wages increased as a response, suggesting that along with an increase in the supply there was also an increase in demand for skill. We also show that college openings led to an increase in the productivity of skilled labor and investments in R&D. Our findings are consistent with models of endogenous technical change where an abundance of skilled workers may encourage firms to adopt skill-complementary technologies, leading to an upward-sloping long-run demand for skill.

The Legacy of King Cotton: Agricultural Patterns and the Quality of Structural Change

“…Theories of directed technical change predict that, given sufficiently high elasticity of substitution, technical change will be biased toward more abundant factors (Acemoglu, 1998(Acemoglu, , 2002. Empirical evidence of directed technical change is widely observed from country-level (Caselli et al, 2006) to local labor markets (Acemoglu and Restrepo, 2018;Carneiro et al, 2014). In a similar sense, Lewis (2011) and Clemens et al (2017) find that local labor markets responded to immigration shocks by adjusting labor-intensity of production technologies.…”

Redistributive Income Taxation with Directed Technical Change

“…Estimates over a period of about 10 years are consistently close to zero, ranging from −0.1 to 0. Finally, the estimate from Carneiro et al (2019) for an adjustment period of 17 years shows an effect of 0.5. These long-run effects are total effects, in the sense that they include both within-technology and between-technology (directed technical change) substitution.…”

“…Yet, under conditions that are supported by existing empirical evidence (e.g. Carneiro, Liu and Salvanes, 2019, see Section 7.1 below), directed technical change effects dominate and skill premia decline in response to progressive tax reforms.…”

“…I use empirical work on directed technical change to quantify my results. In particular, I use estimates from Lewis (2011), Dustmann and Glitz (2015), Morrow andTrefler (2017), andCarneiro et al (2019) to calibrate the strength of directed technical change effects in my model. The empirical literature on directed technical change is discussed in more detail in Section 7.…”

“…Thereby, it provides estimates of γ CES and ρ CES obtained consistently within a single framework. For these reasons, I set γ CES = −0.5, the estimate implied by Carneiro et al (2019). The implied elasticity of substitution is σ = 2.…”