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Joelle Saad-Lessler
This paper analyzes how changes in the local skill distribution of the labor force affect the local wage distribution. I measure the elasticity of wages to changes in the supply of the various skill groups, using time series and cross sectional data on Metropolitan Statistical Areas in the US in 1980 and 1990. Unlike previous studies, I estimate own and cross-wage elasticity for each skill group and I allow for the existence of human capital spillovers in the labor market. Moreover, I introduce a new instrument to control for the bias that occurs when local labor supplies are simultaneously determined with local wages. I find that cross-wage elasticities are significantly different from zero and therefore should not be ignored. I also find that the estimated cross-wage elasticities are not symmetrical across skill groups, and therefore should not be constrained to be symmetrical.
