The skilled worker premium and labor's share of income: Recent trends in U.S. manufacturing

Abstract

A well‐established literature documents the role of outsourcing and technological change in explaining the growing skills premium in the U.S. economy from the 1970s through the late 1990s. In the 1980s labor's share of income relative to capital also began to decline. These two trends continue through the great recession. Separate literatures identify different reasons for the change in the skills premium and the decline in labor's share. This article considers the explanations for these two phenomena in a unified framework. The analysis is based on U.S. manufacturing data from 2002 through 2017, a period when there were significant shifts in the rate of growth in outsourcing and market concentration.