Skill Biased Technical Change Theory

Document Type:Research Paper

Subject Area:Economics

Document 1

Conventionally, the technical changes in the labor market are perceived to be neutral factors in determining the working conditions as well as the wages. However, there is a rapid uptake of skilled labor among organizations due to increased demand and supply of the same. Therefore, the technological innovations cause the skilled-biased scenario. Moreover, the rise of information technology and advanced computer systems is complementary to skilled labor during adoption but is subject to change based on the relative prices of implementation, organizational realignments, and the size and dynamics of the labor market. The paradigm of technical development became popular in the twentieth century after it was apparent that technological advances in the world favored the skilled workers. These changes led to the adoption of the skill-biased technical changes theory, where laborers with high educational qualifications and relevant professional skills received the highest pay.

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The new school of thought focused on the use of computers and the internet in almost all industries. As a result, it emerged that the most companies, especially in the manufacturing sector, invested heavily in research and development. This led to an influx in the number of people hired for the white-collar jobs. However, technological changes were not solely responsible for wage inequality. Additionally, learning will enable people to have specialized skills, promoting the development of high-quality products that conform to the market demands. Nonetheless, learning by doing is a cause of low-skill bias. Notably, learning empirically is difficult, which necessitates the inclusion of experience in the wage equation. For instance, the high-skill workers can develop production systems and define the appropriate processes.

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Once these mechanisms are implemented and functional, the low-skill workers can be trained on operating the machines and performing basic tasks regarding the process. The units also produce small batches of the intended product. As such, the research and development function has an undeniable skill bias towards high-skill labor due to the involvement of special technology. Additionally, the current market structures are highly dynamic and require workers with a high rate of adaptability to the changes. Consequently, the high-skill workers are favored over the low-skill workers. Notably, the latter group of workers can only benefit from the efficient division of labor. Consequently, this skill biased theory has a very big influence in the demand and supply of labor in the industries.

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John Dinardo mentions that when they the demand for a certain commodity is high, those who produce it also hike the supply so as to be able to fit in with the demand and thus the resulting impact is that the price of the commodity tends to be low (Card, D and Dinardo, J 2005). This concept of demand and supply is also very applicable when it comes to labor requirement within the industry. Due to technological advancement that even led to the coming up with the skill biased theory, many organizations and industries turned their focus on workers who had real qualifications and skills of work and therefore this reduced the demand for workers who had very little skills. People who are educated, computer literate, skillful and with a vast experience are nowadays at high demands by various companies and business organizations (Acemoglu et al 2011).

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