Analyzing Skilled And Unskilled Labor Efficiencies In The US

In this paper, using a production framework in which skilled and unskilled labor are imperfect substitutes, the author analyze the time paths of the efficiencies of skilled and unskilled labor and their implications for economic growth and wage inequality in the US between 1950 and 2005. There are two main findings. First, the author finds that skilled labor efficiency has grown more slowly since the mid 1970s. Second and more interestingly, the author finds that beginning in the early 1970s, there has been a considerable decline in the absolute level of the efficiency of unskilled labor, implying that the decline has played a significant role in the overall productivity slowdown and the substantial widening in the U.S. wage structure.