Technology, skills and earnings inequality: a new approach to understanding the characteristics of jobs

The notion of skill plays a dominant role in discussions of increasing earnings inequality and of many other matters related to the impact of changes in the global economy. The prevailing view among economists internationally about the cause of increased earnings inequality is that new technologies lead to increased relative demand for skilled labour, and hence to an increase in wages of the skilled relative to the unskilled. Technological change drives increased earnings inequality, through its impact on the increased demand for skills. In response to this and other issues, governments around the world have implemented programs to increase the supply of skilled labour in their areas of responsibility, as an essential contribution to the increased competitiveness of their economies. But what is skills, especially in the context of the rapidly changing labout makets of the present time, and of the current pace of technological change? Do we know enough about what skill is to use it as an explanatory variable in empirical work or to use it as the centrepiece of policy initiatives? O*NET, the Occupational Information Network, is a database developed by a United States Dept of Labour led consortium which provides detailed information on approximately 1120 occupations. This chapter provides a preliminary analysis designed to test the use of O*NET to examine the changing nature of employment activities in Australia and on the changing pattern of skill. The focus is on two particular issues: (1) whether the knowledge content of jobs is increasing, as is widely supposed, and if so whether it involves detailed specific knowledge or broadly based knowledge across a range of areas; and (2) the changing activities involved in work. A number of themes that emerged from the analysis are outlined in the conclusion.