Labor Market Shifts and the Price Puzzle Revisited

This paper examines the relationship between price growth and skill intensity across 150 manufacturing industries between 1989 and 1995. There are two main findings. First, wage growth and intermediate goods price increases are passed through to final product prices roughly in proportion to their factor shares. Second, product prices have grown relatively less in sectors that more intensively utilize less-skilled labor. The latter finding is consistent with the Stolper-Samuelson theory of expanded trade with countries that are abundant in less-skilled workers, as well as with some models of technological change.