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Session5 Katz .pdf


Original filename: Session5 Katz.pdf
Author: Roeland Euwens

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Katz (1999)

Roeland Euwens i6139923

The inequality between worker’s wages has increased since 1960 even though price for labour increases
as did the supply for college graduates. The demand for skilled workers increased rapidly due to the
implementation of technology on the work floor however the demand for unskilled labour decreased.
The skill biased technological changes (SBTC) favouring skilled workers over unskilled workers due to
increase in relative productions.
During 1960 and 1970 the relative wage of College/High school increased due to the stronger increase of
relative demand compared to relative supply. In the period 1970 and 1980 the relative wage decreased
due to a strong increase in relative supply of college graduates, due to the baby boom generation
availability on the job market who chose due to the Vietnam for college education instead of joining the
labour force to avoid military service. From 1980 till 1990 the relative wage increased due to a stronger
relative increase in demand than supply due to need for skilled labour. In this period the increase in the
difference between Highschool and College graduate’s wages was affected by the deregulation of the
internal US job market practically opening it up towards mainly cheap unskilled foreign workers.
Resulting in an increase in low skilled labour supply and followed by a decrease in wages and workers
union power.
Technology requires skilled workers making it complementary goods, due to the high IT investments,
decentralized decision making and development programs the relative demand for skilled labour
increases. In contrary unskilled labour is substitutable by technology e.g. car production robot. Hereby
increasing the relative demand for technology and skilled labour and decreasing the relative demand for
unskilled labour. The relative wage of unskilled labour drops due to both increased supply and decreased
demand. Furthermore, skilled workers have another competitive advantage they are perceived more
adaptive towards new technology, resulting in less chance of being ruled obsolete when new technology
is implemented in contradiction with their unskilled colleagues. Then due to globalisation the demand
for unskilled labour further decreases due to outsourcing unskilled work to low wage countries. With the
relative increase of skilled labour wage and the relative decrease of unskilled labour wage the income
disparity between education levels increased in the 3 decades.
Not only did wage dispersion increase between different education levels but it also increased within
homogenous groups e.g. Caucasian female, same field college graduate and experience. Meaning that
the rate of earning mobility did not change, meaning that the lowest region is worse of the middle will
be relatively unchanged and the higher region is better off. Resulting in a higher increase in inequality
and making it challenging to rise on the social ladder. Therefore, the poorer become poorer and the
richer become richer.


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