Ruhr Economic Papers

Ruhr Economic Papers #262

The Hidden Increase in Wage Inequality: Skill-biased and Ability-biased Technological Change

by Maren M. Michaelsen

RUB, 06/2011, 36 S./p., 8 Euro, ISBN 978-3-86788-306-1



This study provides strong evidence for an increase in wage inequality induced by skillbiased
technological change in the UK manufacturing industry between 1991 and 2006.
Using individual level data from the BHPS and industry level data from the OECD, wage
regressions are estimated which identify the effect of innovative activity on wages –
the personal innovation wage premium – for university and less educated workers.
Innovative activity is defined by R&D expenditure and patent applications to measure
innovation input and innovation output, respectively. Using different estimation
methods for panel data, such as Fixed effects, Random effects, Mundlak and Hausman-
Taylor models, additionally to pooled OLS allows controlling for both industry-specific
and individual ability. Using R&D expenditure as a measure for innovative activity
additionally provides evidence for ability-biased technological change while patent
applications do not support this hypothesis.

JEL-Classification: I21, J24, J31, O33

Keywords: Wage inequality; skill-biased technological change; ability-biased technological change; United Kingdom