The Growth of Service Industries

The Growth of Service Industries

The Paradox of Exploding Costs and Persistent Demand

Edited by Thijs ten Raa and Ronald Schettkat

Problems arise if budgets for services are held constant whilst prices rise. Education, cultural activities and health services are under constant budgetary pressure. The authors argue that the price of commodities is linked to demand and price increases would therefore seem to threaten the very existence of these services. The paradox of these services is that in spite of their exploding costs, demand persists.

Chapter 4: Technology and international skill demand

Stephen Machin

Subjects: economics and finance, industrial economics, services


1 Stephen Machin 1 INTRODUCTION Across the industrialized world employers’ demand for skilled workers has been rising. This has resulted in them being prepared to pay higher wages to workers with relevant skills, particularly to those with the aptitude and knowledge to utilize the new forms of technologies that are permeating into workplaces throughout the world. There has been much debate about what underpins this increased demand for skilled workers. A large (and still growing) academic literature has emerged which both documents trends in skill demand, and considers what are the key driving forces that lie behind the observed change. A lot of this work pays particular attention to the respective roles of technological change and globalization in shaping skill demand. Technology-based explanations emphasize a skill bias that characterizes new technology. The skill-biased technological change (SBTC) view argues that this complementarity between skills and technology is the key factor that has generated the observed demand shifts in favour of skilled workers. On the other hand, the globalization view is predicated on the view that the opening up of markets to international competition, especially trade with low-wage southern hemisphere countries, has damaged the wage and employment position of less-skilled workers in the advanced world, and it is this which explains the relative demand shifts in favour of the skilled. In this chapter I review the main findings from this literature, drawing on relevant empirical evidence along the way, with the chapter being structured in the following way. Section 2 describes the...

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