Changes in between-group inequality: computers, occupations, and international trade∗

We quantify the impact of several determinants of changes in US between-group inequality. We use an assignment framework with many labor groups, equipment types, and occupations in which changes in inequality are driven by changes in workforce composition, occupation demand, computerization, and labor productivity. We parameterize the model using direct measures of computer usage within labor groupoccupation pairs and quantify the impact of each shock for between-group inequality between 1984 and 2003. We find that the combination of computerization and shifts in occupation demand account for roughly 80% of the rise in the skill premium, with computerization alone accounting for roughly 60%. In an open economy extension of the model, we show how computerization and changes in occupation demand may be caused by changes in the extent of international trade and quantify its impact on US inequality. Moving to autarky in equipment goods and occupation services in 2003 reduces the skill premium by 2.2 and 6.5 percentage points, respectively. ∗We thank Treb Allen, Costas Arkolakis, David Autor, Gadi Barlevy, Lorenzo Caliendo, Davin Chor, Arnaud Costinot, Jonathan Eaton, Pablo Fajgelbaum, Gene Grossman, David Lagakos, Bernard Salanié, Nancy Stokey, and Mike Waugh for helpful comments and Vogel thanks the Princeton International Economics Section for their support. A previous version of this paper circulated under the name “Accounting for changes in between-group inequality.”