The Polarization of Employment: Explanations and Implications Georg - - PowerPoint PPT Presentation

The Polarization of Employment: Explanations and Implications

Georg Graetz Department of Economics at Uppsala University LINK Research Lab, U Texas Arlington, March 23 2016

Introduction

Technology has been improving dramatically over the past half century—the signs of it are all around us At the same time, the labor market has changed in profound ways

◮ in terms of differences in pay—inequality has increased

substantially

◮ in terms of the jobs people do—middle wage jobs are in

decline, a process known as job polarization Economists have documented these changes extensively, and have attempted to explain them I will give a (mostly chronological) overview of this work, with a focus on job polarization

Outline

Technological change and the rising demand for skills The task approach and the polarization of the labor market Extending the task approach: firms’ technology choice Implications for education and training

Outline

Technological change and the rising demand for skills The task approach and the polarization of the labor market Extending the task approach: firms’ technology choice Implications for education and training

The price of computing

1.E-11 1.E-10 1.E-09 1.E-08 1.E-07 1.E-06 1.E-05 1.E-04 1.E-03 1.E-02 1.E-01 1.E+00 1.E+01 1.E+02 1.E+03 1.E+04 1850 1870 1890 1910 1930 1950 1970 1990 2010 Price per unit computing power (2006 $) Manual Thomas arithmometer Abacus (novice) IBM PC Burroughs 9 EDSAC Dell XPS Dell PW380 IBM 360

FIGURE 3 THE PROGRESS OF COMPUTING MEASURED IN COST PER COMPUTATION PER SECOND DEFLATED BY THE PRICE INDEX FOR GDP IN 2006 PRICES

The price of robot labor

20 40 60 80 100 Unit price of robots, quality-adjusted 1990 1995 2000 2005 Year Mean US FRA GER ITA SWE UK

The ratio of college to high school workers

College/high-school log relative supply, 1963-2008 Log relative supply index – – –

The college premium

Compositiion adjusted college/high-school log weekly wage ratio, 1963-2008 Log wage gap

A puzzle and an explanation

The ‘supply’ of college labor relative to high school labor has gone up

◮ everything else equal, the relative price (the college premium)

should have declined But the college premium instead went up! If labor markets are competitive, then a rising demand for skills is the only way to reconcile these facts Modern technology seems to augment the productivity of skilled workers disproportionately—this is the theory of Skill-Biased Technological Change (SBTC)

Outline

Technological change and the rising demand for skills The task approach and the polarization of the labor market Extending the task approach: firms’ technology choice Implications for education and training

Moving beyond SBTC

By what mechanism might technology augment skilled labor?

◮ which tasks are taken over by computers/machines? ◮ which tasks do skilled workers perform? ◮ which tasks are inputs to what skilled workers do?

Example: analytical thinking as performed by consultants or investment bankers requires numerical calculations, which used to be done by humans, now done by computers Autor et al. (2003) call the tasks vulnerable to automation “routine tasks”, document a decline in the number of human workers performing them—Task-Biased Tech. Change (TBTC)

From TBTC to job polarization

“Routine tasks” such as computing, record keeping, repetitive assembly are more common in middle wage occupations than in high and low wage ones

◮ with this observation, TBTC predicts that employment shifts

towards both high and low wage occupations

◮ hollowing out of the labor market or job polarization

Indeed, this has happened!

Job polarization in the US

Panel A. Smoothed changes in employment by skill percentile, 1980–2005

−0.2 −0.1 0.1 0.2 0.3 0.4 20 40 60 80 100

Skill percentile (ranked by 1980 occupational mean wage) 100 × change in employment share

Job polarization in Europe

Change in Occupational Employment Shares in Low, Middle and High Wage Occupations in 16 EU Countries, 1993 - 2010

• 14.9%
• 12.1% -12.0%
• 10.9% -10.8% -10.7% -10.6% -10.6% -10.4% -10.3%
• 9.6%
• 8.6% -8.5%
• 7.6%
• 6.7%
• 4.9%
• 18%
• 15%
• 12%
• 9%
• 6%
• 3%

0% 3% 6% 9% 12% 15%

Job polarization before ICT

• .4
• .3
• .2
• .1

.1 .2 .3 .4 30-Yr Change in Employment Share 20 40 60 80 100 Occupation's Percentile in 1950 Wage Distribution 1950 - 1980 1960 - 1990 1970 - 2000 1980 - 2007

Outline

Technological change and the rising demand for skills The task approach and the polarization of the labor market Extending the task approach: firms’ technology choice Implications for education and training

Feasible is not enough

Some low-skill work could in principle be automated but is not (yet) at all, or not (yet) on large scale

◮ cooking fast food ◮ cleaning ◮ simple forms of hairdressing

It seems plausible that automating these tasks just doesn’t make sense economically—but then we need to think more carefully about the determinants of firms’ choices in technology adoption!

An alternative framework for tasks

Two things should matter for the automation decision: a task’s engineering complexity and whether human workers require training to perform it—these two are not perfectly correlated

Complexity low medium high ALM framework routine non-routine FO framework automatable subject to bottlenecks Innate ability crushing rocks customer reception child care fast food preparation driving a car event planning Training-intensive bookkeeping pre-trial research arguing a legal case weaving trading stocks designing fashion

Why job polarization is not unique to ICT

Suppose some general purpose technology—the electric motor, ICT—makes it easier to automate tasks in general. Which tasks will firms choose to automate?

◮ tasks that are less complex (though as technology improves,

automate more-complex tasks)

◮ tasks where labor is expensive—e.g. because of training

Low-skill workers are shielded from automation—they are cheap, and often perform complex tasks, as are high skill workers—the tasks they perform are too complex to be profitably automated Middle skill workers are most likely to be replaced

Accounting for job polarization in the US

For each of 260 occupations, measure their training requirements and engineering complexity in 1980

◮ statistical model that relates occupational employment growth

to initial training requirements and complexity

◮ use model to predict the 2008 distribution of employment

across occupations that is due to training and complexity

◮ compare to actual distribution

Accounting for job polarization in the US

• .2

.2 .4 .6 100 x Change in Employment Share, 1980-2008 20 40 60 80 100 Skill percentile (ranked by 1980 occupational mean wage) Actual Predicted: Autor-Dorn Predicted: training & complexity

Outline

Technological change and the rising demand for skills The task approach and the polarization of the labor market Extending the task approach: firms’ technology choice Implications for education and training

Focus on tasks is key

How much education, and what kind, should you obtain? From the point of view of SBTC

◮ more education is a good thing as technology complements

skilled labor, but no guidance on what kind From the point of view of TBTC

◮ choose occupations that are likely to stay and which are likely

to be complemented by technology

◮ be wary of jobs that require non-negligible amounts of training

but are not very complex—these are likely to disappear

◮ keep in mind, declines in occupational employment and in

training requirements are driven by the same forces, as the theory predicts

Conclusion

As technology advances, the labor market gets transformed in profound ways Economists have documented these changes thoroughly, and have attempted to come up with explanations There has been a productive interplay between theory and evidence—theory has often led researchers to uncover unexpected facts, and new evidence has led to better theories Policy implications are not straightforward

Literature

◮ Acemoglu & Autor (2011), “Skills, Tasks and Technologies: Implications

for Employment and Earnings”, Handbook of Labor Economics

◮ Autor et al. (2003), “The Skill Content Of Recent Technological Change:

An Empirical Exploration”, The Quarterly Journal of Economics

◮ Barany & Siegel (2014), “Job Polarization and Structural Change”,

working paper

◮ Feng & Graetz (2015), “Rise of the Machines: The Effects of

Labor-Saving Innovations on Jobs and Wages”, working paper

◮ Goos & Manning (2007), “Lousy and Lovely Jobs: The Rising

Polarization of Work in Britain”, The Review of Economics and Statistics

◮ Goos et al. (2014), “Explaining Job Polarization: Routine-Biased

Technological Change and Offshoring”, American Economic Review

◮ Graetz & Michaels (2015), “Robots at Work”, working paper ◮ Nordhaus (2007), “Two Centuries of Productivity Growth in Computing”,

The Journal of Economic History

Thank you!