We investigate the hypothesis that the combination of three related innovations—1) information technology (IT), 2) complementary workplace reorganization, and 3) new products and services — constitute a signi�cant skill-biased technical change affecting labor demand in the United States. Using detailed �rm-level data, we �nd evidence of complementarities among all three of these innovations in factor demand and productivity regressions. In addition, �rms that adopt these innovations tend to use more skilled labor. The effects of IT on labor demand are greater when IT is combined with the particular organizational investments we identify, highlighting the importance of IT-enabled organizational change. I.

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There have been striking postwar changes in the supply and price of skilled labor relative to unskilled labor. The relative quantity of skilled labor has increased substantially, and the skill premium, which is the wage of skilled labor relative to unskilled labor, has grown significantly since 1980. Many studies have found that it is difficult to account for the increase in the skill premium on the basis of observable variables and have concluded that latent "skill-biased technological change" is the main factor responsible for the increase. This paper develops a framework that provides a simple, explicit economic mechanism for understanding skill-biased technological change in terms of observable variables and uses the framework to evaluate the fraction of variation in the skill premium that can be accounted for by changes in observed factor quantities. We use a version of the neoclassical growth model in which the key feature of the aggregate technology is capital-skill complementar...

Many economists and policy makers believe that education creates positive externalities. Indeed, average schooling in U.S. states is highly correlated with state wage levels, even after controlling for the direct e¤ect of schooling on individual wages. We use variation in child labor laws and compulsory attendance laws over time and across states to investigate whether this relationship is causal. Our results show private returns to education that are around 7 percent, and external returns to education that are in the neighbourhood of 1-2 percent and not signi…cantly di¤erent from zero.

We examine the relationship between income growth and saving using both cross-country and household data. At the aggregate level, we find that growth Granger causes saving, but saving does not Granger cause growth. Using household data, we find that households with predictably higher income growth save more than households with predictably low growth. We argue that standard permanent income models of consumption cannot explain these findings, but, a model of consumption with habit formation may. The positive effect of growth on saving implies that previous estimates of the effect of saving on growth may be overstated.

provided helpful comments. Special thanks to Stefanie Schmidt for helpful advice on compulsory schooling data. The views expressed herein are those of the authors and not necessarily those of the National Bureau

This paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995. The data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income. Indeed, this small group of executives can account for as much as 20 % of the aggregate change in wage and salary income for approximately the one million richest taxpayers; one person alone can account for more than 2%. The decline, however, is almost entirely a short-run shift in the timing of compensation rather than a permanent reduction in taxable income. The short-run elasticity of taxable income with respect to the net of tax share exceeds one but the elasticity after one year is at most 0.4 and probably closer to zero. Breaking out the tax responsiveness of different types of compensation shows that the large short-run responses come almost entirely from a large increase in the exercise of stock options by the highest income executives in anticipation of the rate increases. Executives without stock options, executives with relatively lower incomes, and more conventional forms of taxable compensation such as salary and bonus show little responsiveness to tax changes.

The U.S. unemployment rate is so much lower because the population is so much older. This paper argues that in the absence of the baby boom, the unemployment rate would neither have increased from 1957 to 1979, nor have fallen in the subsequent two decades. The paper also considers other demographic changes. The most quantitatively significant is the increased educational attainment of the labor force. Since more educated workers have lower unemployment rates, it might appear that this should have (counterfactually) caused a secular decline in unemployment. However, there are theoretical reasons to believe that an increase in education will not translate into a reduction in unemployment, and independent empirical evidence to support this view. "In a well-known paper in one of the inaugural issues of the Brookings Papers,Robert Hall posed the question, `Why is the Unemployment Rate So High at Full Employment ?' [Hall (1970)] Hall, writing in the context of the 3.5% unemployment rate that prevailed in 1969, answered his question by explaining that the full-employment rate was so high because of the normal turnover that is inevitable in a dynamic economy ... . Today [in 1986], four years into an economic recovery, the unemployment rate hovers around 7%. Over the past decade, it has averaged 7.6% and never fallen below 5.8%. ... While some of the di#erence between recent and past levels of unemployment has resulted from cyclical developments, it is clear that a substantial increase in the normal or natural rate of unemployment has taken place." --- Summers (1986) 1.

Self-selected migration presents one potential explanation for why observed returns to a college education in local labor markets vary widely even though U.S. workers are highly mobile. To assess the impact of self-selection on estimated returns, this paper first develops a Roy model of mobility and earnings where workers choose in which of the 50 states (plus the District of Columbia) to live and work. Available estimation methods are either infeasible for a selection model with so many alternatives or place potentially severe restrictions on earnings and the selection process. This paper develops an alternative econometric methodology which combines Lee's (1983) parametric maximum order statistic approach to reduce the dimensionality of the error terms with more recent work on semiparametric estimation of selection models (e.g., Ahn and Powell, 1993). The resulting semiparametric correction is easy to implement and can be adapted to a variety of other polychotomous choice problems. The empirical work, which uses 1990 U.S. Census data, confirms the role of comparative advantage in mobility decisions. The results suggest that self-selection of higher educated individuals to states with higher returns to education generally leads to upward biases in OLS estimates of the returns to education in state-specific labor markets. While the estimated returns to a college education are significantly biased, correcting for the bias does not narrow the range of returns across states. Consistent with the finding that the corrected return to a college education differs across the U.S., the relative state-to-state migration flows of college- versus high school-educated individuals respond strongly to differences in the return to education and amenities across states.

This paper explores the impact on older workers of new technologies that change skill requirements. Older workers, with older skills and less skills than prime-age workers, will suffer in comparison. Furthermore, if skill acquisition is costly, older workers have less incentive to acquire new skills because they have a shorter time horizon until retirement. Several data sets show that the rate of computer use is surprisingly flat over most ages but declines for the oldest workers. The evolution of computer use suggests that most workers, old or young, learn to use computers as needed, and further that older workers use computers less not because they are old, but because they are nearing retirement. In turn, we might expect older workers who do not use computers to retire sooner. In the Health and Retirement Survey non-computer users were 25% more likely to leave work between 1992 and 1996. Instrumental variables estimates, which aim to control for the impact of retirement plans on computer use, do not yield conclusive results, but they suggest that computer use lowers the retirement probability, especially for 55-59 year olds.