Comment

Abstract

There is by now a huge literature on the increase in the college premium and other dimensions of inequality in the United States and many other Western nations (see Acemoglu andAutor [2011] for an overview of this literature). As I discuss in the following text, the focal explanation in this literature is that technological changes of the last 4 decades have increased the demand for skills and have pushed up premia to different kinds of skills, college education among them (though other factors including globalization and changes in labormarket institutions have also contributed to these trends). The paper by Jaimovich, Rebelo, Wong, and Zhang tackles an important topic anddevelops a relatively underresearched line of inquirywithin this broad literature. The main idea is that a major contributor to the increase in the demand for skills has been “trading up” (the authors’ term) by households to higher-quality products as they have become richer. Higher-quality products are argued to bemore intensive in skilled labor. As a result, this process has naturally brought a higher demand for skills as a by-product of economic growth. This is an important idea, and one I sympathize with a lot. The paper also has a noteworthy original contribution in providing compelling motivating evidence. It estimates product quality froma variety of sources, links these to establishment-level demand for skills from the microdata of the Occupational Employment Statistics (OES) data set of the Bureau of Labor Statistics, and verifies that higher-quality products are more skill intensive than products of lower quality. This empirical work alone is worth more than the price of admission. But the paper does not fully deliver on this very promising research agenda. The reason why it fails to do that is interesting and instructive. It is because it follows a methodology I call quantitative Friedmanite modeling. This approach combines Friedman’s (1953/2008) famous