Spillovers from High-skill Consumption to Low-skill Labor Markets

Francesca Mazzolari, University of California, Irvine
Giuseppe Ragusa, University of California, Irvine

Low-skill workers in the United States are increasingly employed in the provision of time-intensive services that substitute for home production activities. The wage gap between this sector and the rest of the economy has shrunk over time. If skilled workers demand more of these services, then wage gains at the top of the distribution (such as those observed in the last three decades) would predict a rise in the consumption of these services. We provide evidence suggesting that this kind of demand shifts are a viable explanation for the above stylized facts, and for some of the relative wage growth at the bottom of the distribution observed in the 1990s (Autor, Katz and Kearney, 2006). Given that the low-skill services we focus on are an immigrant-intensive sector, demand shifts driven by consumption spillovers might also explain the drop in the immigrant-native wage gap observed at the bottom of the distribution in recent years (Borjas and Friedberg, 2007).