Supply and Demand for Skill, Relative Wages and the Allocation of Workers to Tasks: Theory and Evidence from Brazil

Abstract

This article develops a competitive model that relates the relative wages and allocation to tasks of workers with different education levels to the demand and supply of skills, providing empirical evidence for the case of Brazil. The model assumes that all skilled workers perform complex tasks, unskilled workers perform simple tasks and semiskilled workers can do both. The distribution of semi-skilled workers across tasks is generated endogenously to maximize total output of the economy. We conduct an empirical simulation of the model for the Brazilian economy in the period 1981-2009. The results suggest that there has been a rise in the relative demand for skilled workers in complex tasks and for semiskilled workers in simple tasks. Absent these demand shocks, the relative wages of the semiskilled workers would have fallen by more and the relative wages of the skilled workers would have fallen instead of rising in Brazil over the last 30 years.