Archived — Working Paper Number 28: Technology and the Demand for Skills: An Industry-Level Analysis

by Surendra Gera and Wulong Gu, Industry Canada, and Zhengxi Lin, Statistics Canada, March 1999


Abstract

This paper examines the effect of technological change on the relative demand for skilled workers across Canadian industries. Using data from a number of Canadian labour market surveys, the paper explores two questions: (1) has skill intensity risen across industries over the 1981–1994 period; and (2) is biased technological change the main cause of the shift in demand toward skilled workers? We proceed in two steps. First, we use broader occupational distinctions to develop two alternative industry-based skill measures — one based on the skill classification identified in the National Occupational Classification (NOC), and the other based on the skill classification scheme proposed by Wolff and Baumol (1989). Second, we combine data on skills with four industry-level measures of technology: the stock of research and development (R&D), the stock of patents used by the industry, total factor productivity, and the age of the capital stock.

A simple supply-demand framework is used to interpret changes in the relative quantities and wages of workers over the 1981–1994 period. The results suggest that the relative supply of skilled workers increased and relative wages remained stable or fell slightly. Thus we infer that relative demand rose. We find that the rise in skill intensity is pervasive across Canadian industries. The shift in demand for more-skilled workers since the beginning of the 1980s is entirely driven by "within-industry" skill utilization rather than "between-industry" employment shifts. This is true both in manufacturing and in services. As argued by Berman, Bound and Griliches (1994), this evidence seems consistent with the view that biased technological change played a dominant role in skill upgrading. The technology indicators — R&D capital, stock of patents used by the industry, age of the capital stock — are generally found to be strongly correlated with skill intensity. From this we infer that biased technological change has been a key factor to within-industry skill upgrading across Canadian industries. These results simply that skill upgrading has occured both in industries that invested heavily in new capital during the 1980s and in those that are R&D capital-intensive.

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