Discussion

Chang-Tai Hsieh opened the general discussionwith a question onmeasurement. The authors’model can be used to back out ameasure of skillbiased technical change (SBTC), he noted. However, this measure is model dependent and its units vary with the parametrization, he argued. Hsieh asked the authors about a possible empirical counterpart to this measure. The authors agreed that their measure of quality or SBTC is model dependent. However, they argued that there is a formal equivalence between their model with SBTC and existing models with capital and skill complementarities (but no SBTC), such as Per Krusell, Lee E. Ohanian, José-Vı́ctor Rı́os-Rull, and Giovanni L. Violante (“Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis,” Econometrica 68, no. 5 [2000]: 1029–53), for which units are somewhat more interpretable. In those models, changes in the price of capital increase the complementarity between capital and high-skill labor. This mechanism amplifies the response to shocks, they noted, just like the “trading up” phenomenon in their model. Richard Blundell argued that the market for childcare constitutes a good case study of trading up. Childcare is a nontradable, low-skill good, he noted. However, the demand for this service has increased over time as women’s incomes improved. In appearance, this runs counter to the authors’ premise. But in reality, the composition of the demand for childcare changed, Blundell said. As incomes grew, so did the demand for skilled childcare. Blundell noted that the literature on the subject typically allows for variable quality in the production of care, much like in the authors’ paper. The authors agreed with Blundell’s comment. They added that childcare is a particularly interesting service in that it could be produced at home as well. Allowing for choices at the extensive margin would be an interesting extension, they said.