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Title: Marketization in a Heterogeneous Skill Economy

Citation Type: Miscellaneous

Publication Year: 2022

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Abstract: The surge in marketization-the purchase of services from the market that would otherwise be produced at home-in the US has been attributed to decreases in the marginal cost of marketable services through increased productivity. In this paper, I show that low-skilled labor is the largest input to the production of these personal services, and thus low-skilled wage movements contribute to marginal cost declines. To illustrate the role that the rising skill premium has played in marketization, I build a model to study the economic forces that shape households' resource allocation in a heterogeneous skill economy. In contrast to the findings in the representative household models, my quantitative exercise shows that changes to the wage structure, rather than a larger growth of productivity of the market service sector relative to the home sector, are the predominant drivers of marketization. Thus, the forces that change the skill premium can entirely account for trends in marketization. This new mechanism suggests that policies and labor market institutions that are responsible for the trajectory of the skill premium can also affect the extent of marketization.

Url: https://yinuozhang-econ.github.io/JMP_web.pdf

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Authors: Zhang, Yinuo

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Data Collections: IPUMS USA

Topics: Labor Force and Occupational Structure, Poverty and Welfare

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