Trading Up and the Skill Premium

42 Pages Posted: 11 Jun 2019

See all articles by Nir Jaimovich

Nir Jaimovich

University of Zurich

Sergio T. Rebelo

Northwestern University - Kellogg School of Management; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Arlene Wong

Princeton University

Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Multiple version iconThere are 3 versions of this paper

Date Written: June 2019

Abstract

We study the impact on the skill premium of increases in the quality of goods consumed by households (“trading up”). Our empirical work shows that high- quality goods are more intensive in skilled labor than low-quality goods and that household spending on high-quality goods rises with income. We propose a model consistent with these facts. This model accounts for the past rise in the skill premium with more plausible rates of skill-biased technical change than those required by the canonical model. It also implies that an expansion of the skilled labor force reduces the skill premium by much less than in the canonical model.

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Suggested Citation

Jaimovich, Nir and Tavares Rebelo, Sergio and Wong, Arlene and Zhang, Miao Ben, Trading Up and the Skill Premium (June 2019). NBER Working Paper No. w25931. Available at SSRN: https://ssrn.com/abstract=3401637

Nir Jaimovich (Contact Author)

University of Zurich ( email )

Sergio Tavares Rebelo

Northwestern University - Kellogg School of Management ( email )

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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Arlene Wong

Princeton University ( email )

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Princeton, NJ 08544-0708
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Miao Ben Zhang

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www.MiaoBenZhang.com/

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