Reinterpreting the Skill-biased Technological Change Hypothesis

A Study of Technology, Firm Size, and Wage Inequality in the California Hospital Industry

by Cassandra M. Guarino

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This study examines data from the 1983-1993 California hospital industry to test whether observed patterns of wage inequality growth can be explained by the skill-biased technological change hypothesis. The study finds little evidence of a direct link between technological inputs and skill premia, particularly when growth in firm size is taken into account. The findings challenge the notion that technological change is skill biased and suggest that economies of scale permit hospitals to compete for clientele on the basis of labor force quality. Since technological expenditures often promote consolidation, a reassessment of the relationship between wages and technology is suggested.

The research described in this report was performed under the auspices of RAND Labor and Population.

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