The role of technology in determining skilled employment: an economywide approach

In this paper, the authors emphasise that, while the Australian economy has enjoyed strong growth and falling unemployment over much of the past decade, there has been concern over two emerging trends. The first is the perceived lack of growth in full-time employment opportunities and the second, the growing earnings inequality among those working. Studies have shown that growing wage inequality among different skill levels is a driving force behind the growth in income inequality. This outcome is seen to be a result of changing relative demand for skilled workers. The literature provides two explanations for this change in demand. The first is that technological advances are biased in favour of the employment of skilled workers. Such advances have driven up the demand for skilled workers, and hence their wages, by increasing their productivity relative to less skilled labour. This hypothesis is known as skill biased technical change (SBTC). The trade hypothesis, however, suggests that imports from low wage countries have lowered demand for, and wages of, less skilled labour in the Australian economy. This paper attempts to address some of the issues surrounding the investigation of growing earnings inequality in the literature while providing additional evidence of SBTC in Australia. The aim is to investigate the underlying sources of the shift in employment toward skilled workers in Australia, i.e. upskilling, using a general equilibrium framework. While the focus is on the role of technological change, the arguments for the trade hypothesis are also considered.

In this paper, the authors emphasise that, while the Australian economy has enjoyed strong growth and falling unemployment over much of the past decade, there has been concern over two emerging trends. The first is the perceived lack of growth in full-time employment opportunities and the second, the growing earnings inequality among those working. Studies have shown that growing wage inequality among different skill levels is a driving force behind the growth in income inequality. This outcome is seen to be a result of changing relative demand for skilled workers. The literature ...  [+] Show more