Skill-Biased Technological Change

Definition

Skill-biased technological change refers to the phenomenon where advancements in technology and automation primarily benefit workers with higher skills and education, leading to an increase in the wage gap between skilled and unskilled laborers. This concept is crucial in understanding changes in labor markets and the causes of income inequality.

5 Must Know Facts For Your Next Test

1. Skill-biased technological change has led to an increase in the demand for highly skilled workers, as new technologies often complement their skills and abilities.
2. The increased demand for skilled labor has driven up their wages, while the demand and wages for unskilled labor have stagnated or declined.
3. Skill-biased technological change has been a significant contributor to the growing income inequality observed in many developed countries.
4. The adoption of technologies such as computers, robotics, and artificial intelligence has disproportionately benefited workers with higher levels of education and specialized skills.
5. The widening gap between the wages of skilled and unskilled workers has led to concerns about the fairness and sustainability of economic growth, as the benefits of technological progress are not evenly distributed.

Review Questions

• Explain how skill-biased technological change affects the demand for labor in different skill groups.
  • Skill-biased technological change increases the demand for skilled labor, as new technologies often complement the skills and abilities of highly educated workers. This leads to a rise in the wages of skilled laborers. Conversely, the demand for unskilled labor decreases, as automation and technology replace many tasks previously performed by these workers, resulting in stagnant or declining wages for the unskilled.
• Analyze the relationship between skill-biased technological change and income inequality.
  • Skill-biased technological change is a significant contributor to the growing income inequality observed in many developed countries. The increased demand for skilled labor and the rise in their wages, coupled with the decreased demand and wages for unskilled labor, has led to a widening gap between the earnings of these two groups. This disparity in wages and the uneven distribution of the benefits of technological progress have raised concerns about the fairness and sustainability of economic growth.
• Evaluate the potential societal and economic implications of skill-biased technological change.
  • The uneven distribution of the benefits of skill-biased technological change can have significant societal and economic implications. The growing wage gap between skilled and unskilled workers can lead to social tensions, political instability, and reduced social mobility, as the economic rewards of technological progress are not shared equally. Additionally, the displacement of unskilled workers by automation can contribute to job insecurity, unemployment, and the need for retraining and education programs to help workers adapt to the changing labor market. Addressing these challenges requires a comprehensive approach that balances technological progress with policies aimed at ensuring more equitable distribution of the gains from economic growth.

Related terms

Technological Progress: The advancement and adoption of new technologies that improve productivity, efficiency, and the way work is performed.

Wage Inequality: The disparity in wages and earnings between different groups of workers, often based on skill level, education, or occupation.

Automation: The use of technology and machinery to perform tasks and jobs that were previously done by human workers.