Relative wage structure in Chile, 1957-1992 : changes in the structure of demand for schooling

In the present paper, the author delves into the underlying labor supply and demand factors responsible for this shift, and concludes that within industry (as opposed to cross industry) changes spurred by modernization are responsible for the shift towards more educated and higher skilled workers. This finding is supported by examination of the distributions of schooling and occupations within industries, where significant educational and occupational upgrading was observed, as well as by a formal disaggregation of demand changes, which revealed the key role of within-industry demand changes favoring more educated workers over the 1974-1990 period. Overall, the analysis suggests that trade liberalization, far from increasing demand for goods intensive in unskilled labor, may spur the accumulation of more modern capital, the adoption of more modern techniques of organization and production, and a shift towards skilled workers, thereby actually increasing wage disparity (economists in both the United States and in OECD countries have observed widening relative wage structures and attributed it to skill-biased technological change). As such earnings differentials could threaten the success of reform and imply direct welfare costs, this raises the issue of whether policies should be designed to temporarily equalize incomes through transfers, whether more gradual liberalization might allow labor supply to respond, and whether educational policies supporting higher education should be strengthened to encourage medium- and long-run supply responses that would counteract rising income inequality and contribute to economic growth as well. Data tables are appended. Includes bibliography.