Understanding occupational wage growth

We jointly estimate growth in occupational wage premia as well as time-varying occupation-specific life-cycle profiles for Swedish workers 1996–2013. Our novel identification strategy is based on re-centering of life-cycle profiles around their flat spot. We document a substantial increase in between-occupation wage inequality due to differential growth in premia, and show that changes in worker composition partly counteracted this trend. The association of wage premium growth and employment growth is positive, suggesting that premium growth is predominantly driven by demand-side factors. We also find that wage growth due to occupation-specific skill acquisition was more dispersed in the early years of the sample period. Our results are robust to varying the assumed flat spot over a reasonable range, as well as to allowing for occupation-level changes in returns to cognitive and psycho-social skills. The results suggest that Swedish wage setting institutions have not prevented wages and quantities from adjusting to technological change or consumer demand shifts.