Abstract
We study the impact on the skill premium of increases in the quality of goods consumed by households(“trading up”). Our empirical work shows that high- quality goods are more intensive in skilled laborthan low-quality goods and that household spending on high-quality goods rises with income. Wepropose a model consistent with these facts. This model accounts for the past rise in the skill premiumwith more plausible rates of skill-biased technical change than those required by the canonical model.It also implies that an expansion of the skilled labor force reduces the skill premium by much lessthan in the canonical model.
Jaimovich, Nir