Social Sciences in China (Chinese Edition)

No.10, 2014

 

The Skill Premium: An Interpretation Based on the Direction of Technological Progress

(Abstract)

 

Dong Zhiqing, Cai Xiao and Wang Linhui

 

Skill-oriented technological progress has a strong explanatory power in relation to the skill premium. Introducing individual choice of education and using mathematical modelling to explore the functional mechanisms and effects of different forms of technological progress in relation to labor remuneration, labor supply and demand, and skill premiums, we find that technological progress in China is showing an ever stronger orientation towards skilled labor, widening the wage gap between skilled and unskilled labor and producing the skill premium. However, neutral technological progress will increase the supply of skilled labor and narrow the gap between skilled and unskilled labor. The government should take account of the positive effect of neutral technological progress on wages and realize a sustainable expansion of domestic demand.