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Job Polarization: Evidence and Possible Causes

Paper Session

Sunday, Jan. 5, 2020 10:15 AM - 12:15 PM (PDT)

Marriott Marquis, Rancho Santa Fe 2
Hosted By: American Economic Association
  • Chair: Roberto Pinheiro, Federal Reserve Bank of Cleveland

Skills Prices, Occupations and Changes in the Wage Structure for Low Skilled Men

Nicolas Roys
,
Royal Holloway University of London
Christopher Taber
,
University of Wisconsin-Madison

Abstract

This paper proposes and estimates a model of occupational choice with multi-dimensional skills, time-varying skill prices and labor market frictions to understand the evolution of the wage structure since 1979 for low skilled men. A worker’s multi-dimensional skills are exploited differently across different occupations. We allow for a rich specification of technological change which has heterogenous effects on different occupations and different parts of the skill distribution. We estimate the model combining four datasets: (1) O*NET, to measure skill intensity across occupations, (2) NLSY79, to identify life-cycle supply effects, (3) CPS (ORG), to estimate the evolution of skill prices and occupations over time, and (4) NLSY97 to see how the gain to specific skills has changed. We find that a) reallocation of labor across occupations is hard to understand with a competitive model, b) occupational composition is substantially less important than within-occupation skill prices in explaining both the evolution of both median wages and inequality, c) lifecycle wage growth depends on a combination of different skills, d) the premium to interpersonal skills has gone up most sharply for these workers though manual skills remain the most important.

Sources of Earnings Growth Heterogeneity

Fatih Karahan
,
Federal Reserve Bank of New York
Serdar Ozkan
,
University of Toronto
Jae Song
,
Social Security Administration

Abstract

Individuals that rank at the top of the lifetime earnings (LE) distribution experience almost an 8-fold increase in their annual earnings between age 30 and 55, whereas median earners only see a 50% increase. What explains the vast heterogeneity in lifetime earnings growth? We study the different career paths across the LE distribution. Using administrative data, we document large differences in job switching patterns, incidence of unemployment, and wage growth for job-stayers and switchers across the LE distribution. To interpret these facts, we estimate a job-ladder model featuring heterogeneity in unemployment risk, job finding rate, contact rate for employed workers, and firm distribution, as well as returns to experience. The estimated model matches a rich set of facts including
the dispersion in the career paths over the LE distribution, as well as the higher order moments of earnings changes. We use the estimated model to decompose lifetime earnings growth differences into i) ex-ante heterogeneity in unemployment risk, and offer arrival rate both on and off the job, ii) returns to experience, and iii) ex-post idiosyncratic risk. We find that earnings growth heterogeneity is mainly due to differences in job ladder risk for workers below the median LE, and due to returns to experience above the median.

Automation, Spatial Sorting, and Job Polarization

Jan Eeckhout
,
Pompeu Fabra University
Christoph Hedtrich
,
Pompeu Fabra University
Roberto Pinheiro
,
Federal Reserve Bank of Cleveland

Abstract

We present evidence showing that more expensive cities - measured by rental costs - have not only invested proportionately more in automation (measured by investment in Enterprise Resource Planning software) but also have seen a higher decrease in the share of routine abstract jobs (clerical workers and low-level white collar workers). We propose an equilibrium model of location choice by heterogeneously skilled workers where each location is a small open economy in the market for computers and software. We show that if computers are substitutes to middle skill workers - commonly known as the automation hypothesis - in equilibrium large and expensive cities invest more in computers and software, substituting middle skill workers with computers. Intuitively, in expensive cities, the relative benefit of substituting computers for routine abstract workers is higher, since workers must be compensated for the high local housing prices. Moreover, if the curvature of the production function is the same across skills, the model also delivers the thick tails in large cities' skill distributions presented by Eeckhout et al. (2014).

A Tale of Two Workers: The Macroeconomics of Automation

Nir Jaimovich
,
University of Zurich
Itay Saporta-Eksten
,
Tel Aviv University
Henry Siu
,
University of British Columbia
Yaniv Yedid-Levi
,
IDC Herzliya

Abstract

We present a heterogeneous agent macroeconomic model to study the implications of technological advance and automation on the aggregate labor market and income inequality. The model is quantitatively rich, featuring labor market and asset market frictions, and occupational and labor-force participation choices. The empirical relevance of the model allows us to evaluate the welfare implications of alternative policies proposed in policy discussions.
Discussant(s)
Fabian Lange
,
McGill University
Nicolas Petrosky-Nadeau
,
Federal Reserve Bank of San Francisco
Enghin Atalay
,
University of Wisconsin-Madison
Roberto Pinheiro
,
Federal Reserve Bank of Cleveland
JEL Classifications
  • J3 - Wages, Compensation, and Labor Costs
  • J2 - Demand and Supply of Labor