Skill Premium in Chile: Studying Skill Upgrading in the South

44 Pages Posted: 3 Dec 2010

See all articles by Francisco A. Gallego

Francisco A. Gallego

Pontificia Universidad Catolica de Chile

Date Written: May 1, 2010


The evolution of the skill premium (i.e., the wage differential between skilled and unskilled workers) has interest from at least two perspectives: it is a rough measure of inequality among workers of different qualifications and provides information on the characteristics of the development process of the economy. In this paper, I investigate empirically the evolution of the skill premium in Chile over the last 40 years. After some fluctuations in the 1960s and 1970s, the skill premium increased in the 1980s and has remained roughly constant since then. The data suggest that this evolution is an outcome of a significant increase in relative demand for skilled workers in the 1980s and 1990s and a sizeable increase in the relative supply in the 1990s. Sectoral evidence shows that, after controlling for sector and time effects, (i) the relative demand increased faster in the same industries in Chile than in the US and (ii) the correlation is stronger for tradable industries and non-tradable industries that are intensive in imported capital, as expected. This result is consistent with a number of theories that link skill upgrading in developed and developing countries. To try to disentangle among these theories, I present time series evidence suggesting that, after controlling for other determinants of skill premium, not only there is a positive correlation between skill premium in Chile and in the US but also the size of the correlation is consistent with the Acemoglu (2003a) model of endogenous technological choice in which new technologies are produced in developed countries (like the US) and adopted in developing economies (like Chile).

Keywords: Wage premium, Skill Upgrading, Openness, Skill Biased Technical

JEL Classification: O3, J31

Suggested Citation

Gallego, Francisco A., Skill Premium in Chile: Studying Skill Upgrading in the South (May 1, 2010). Available at SSRN: or

Francisco A. Gallego (Contact Author)

Pontificia Universidad Catolica de Chile ( email )

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