Skill composition: exploring a wage-based skill measure

Abstract

Most studies of heterogeneous labor inputs use classifications of high skilled and low skilled based on workers' educational attainment. In this study we explore a wage-based skill measure using information from a wage equation. Evidence from matched employer--employee data show that skill is attributable to many variables other than educational length, for instance experience and type of education. Applying our wage-based skill measure to a TFP growth analysis, we find that the TFP residual decreases, indicating that more of the change in value-added is picked up by our skill measure than when using a purely education-based measure of skill. Keywords: Skill composition, wages, TFP.