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Wages, Skills and Technology in the United States and Canada

Wages for more and less educated workers have followed strikingly different paths in the US and Canada. During the 1980s and 1990s, the ratio of the earnings of university graduates to high school graduates increased sharply in the US but fell slightly in Canada. Katz and Murphy (1992) found that for the US, a simple supply-demand model fit the pattern of variation in the premium over time. We find that the same model and parameter estimates explain the variation between the US and Canada. In both instances, the relative demand for more educated labor shifts out at the same, consistent rate. Both over time and between countries, the variation in rate of growth of relative wages can be explained by variation in the relative supply of more educated workers. Many economists suspect that technological change is causing the steady increases in the relative demand for more educated labor. If so, these data provide independent evidence on the spatial and temporal variation in the pattern of technological change. Whatever is causing this increased demand for skill, the evidence from Canada suggested that increases in educational attainment and skills can reduce the rate at which relative wages diverge.

Paul Romer
Craig Riddell
Kevin Murphy
Publication Date
August, 1998