Small Firms, Contracting‐out, Computers and Wage Inequality: Evidence from UK Manufacturing

Using a panel of 80 industries for 1980–89, the average skill premium rose by around 13 percentage points and computer introduction explains around 50% of this rise.

Abstract

What demand‐side and institutional factors raised the skilled wage premium over the 1980s in UK manufacturing? Using a panel of 80 industries over 1980–9, we find that (1) the average skill premium rose by around 13 percentage points; (2) computer introduction explains around 50% of thisrise; (3) the growth in small firms and in contracting‐out together explain around 20% of the rise; and (4) the fall in unionization explains around 15% of the rise.