ICT Capital-Skill Complementarity and Wage Inequality: Evidence from OECD Countries

Abstract

Although wage inequality has evolved in advanced countries over recent decades, it is unknown the extent to which the evolution of wage inequality is attributable to observed factors such as capital and labor quantities or unobserved factors such as labor-augmenting technology. To examine this issue, we estimate an aggregate production function extended to allow for capital-skill complementarity and factor-biased technological change using cross-country panel data and the shift-share instrument. Our results indicate that most of the changes in the skill premium are attributed to observed factors including ICT equipment in the majority of OECD countries