Technology Diffusion, Worker Mobility and the Returns to Skill

In this paper I illustrate how the diffusion across firms of a skill-neutral technology leads to a skill-biased impact on the economy. The model identifies (i) differences in inter-firm mobility between skill groups, (ii) productivity dispersion across firms within industries, and (iii) differences in wages between small and large firms as key determinants of the skill premium. Calibrated to match differences in inter-firm mobility between skill groups and rising productivity dispersion across firms, the model ascribes one-third of the sharp increase in the skill premium in U.S. manufacturing from 1977 to 1997 to skill-neutral technical progress and the technology diffusion process itself. Technical progress complementing high-skill workers accounts for three-fifths of the increase in the skill premium