This paper uses the structure of a two-sector two-factor model to attribute changes in the skill premium across countries to three potential sources: (i) changes in the relative abundance of skilled workers, (ii) technological change and (iii) market size effects due to external economies of scale. I employ the development and growth accounting methodology as analytic tool to assess the relative importance of each one of these channels in explaining changes in the skill premium across countries and time. My findings add to the growing evidence that there is hardly any association between changes in the relative supply of skills and the observed evolution of the skill-premium. Furthermore, I show that the measure of the importance of market size effects governs the strength of the relationship between technological change and the skill-premium. Moreover, for strong enough economies of scale, an increase in the relative supply of skills increases the the skill premium. Importantly, this finding points out that the scale of the economy is an important factor in shaping developments of the skill premium, independent of the specific features of technological change.
JEL Classification: E24 , I24 , J21 , J14 , J31