Date of Award

5-2016

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Legacy Department

Economics

Committee Member

Dr. Robert Tamura, Committee Co-Chair

Committee Member

Dr. Michal Jerzmanowski, Committee Co-Chair

Committee Member

Dr. Scott Baier

Committee Member

Dr. Curtis Simon

Abstract

This dissertation takes the position that a scientific theory ought to be general and parsimonious and apply this rule to Daron Acemoglu's theory of directed technical change to show that the theory provides useful structure for our knowledge of human capital and wages. The first chapter estimates the shape of labor demand and the strength of technical bias by age group in the US while taking account of changes in directed technology that shift relative demand for worker age groups. The data are consistent with demand shifts produced from the theory of directed technical change when the elasticity of substitution between worker age groups in the United States is slightly above 2, the threshold for strong technical bias. Instrumenting for labor supplies with lagged populations gives similar results. The report illustrates how ignoring technical bias can produce higher estimates seen in past work. The second chapter proposes a new macroeconomic mechanism for generating concavity in age-earnings profiles based on directed technical change. The mechanism does not depend on changes in the human capital of the individual as proposed by Ben-Porath and Mincer; rather changes in the relative human capital of age groups affect the profitability of age-specific technologies, biasing innovation toward improving the productivity of younger workers. Using new data, I estimate that on average a worker at the beginning of the career can expect a yearly wage increase of 6.2% while a worker at the end of a career with 40 years of experience can can expect a yearly wage increase of 2.1%. The theory generates maximal earnings at a later age than observed by some past work with macroeconomic data but is consistent with some micro estimates. The theory should be taken as supplemental to (rather than replacing) human capital-based theories of age-earnings profiles.

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