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Labor market polarization, the decline of routine work, and technological change: A quantitative analysis

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  • vom Lehn, Christian

Abstract

A common hypothesis for labor market polarization is that technological progress has decreased the price of machines which are substitutable with middle skilled jobs and complementary to higher and lower skilled jobs. I quantitatively evaluate this hypothesis in a dynamic general equilibrium model. I find that the near constant elasticities of labor demand in the standard technology hypothesis and the observed dynamics of the price of machines are inconsistent with rapid polarization pre-2000 and its slower dynamics thereafter. Extending the model to allow for a separate investment sector requiring only high skilled workers generates a much closer fit to data.

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  • vom Lehn, Christian, 2020. "Labor market polarization, the decline of routine work, and technological change: A quantitative analysis," Journal of Monetary Economics, Elsevier, vol. 110(C), pages 62-80.
    • Handle: RePEc:eee:moneco:v:110:y:2020:i:c:p:62-80
    DOI: 10.1016/j.jmoneco.2019.01.004
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    Cited by:

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    2. Jaimovich, Nir & Saporta-Eksten, Itay & Siu, Henry & Yedid-Levi, Yaniv, 2021. "The macroeconomics of automation: Data, theory, and policy analysis," Journal of Monetary Economics, Elsevier, vol. 122(C), pages 1-16.
    3. Hennig, Jan-Luca, 2021. "Labor Market Polarization and Intergenerational Mobility: Theory and Evidence," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242353, Verein für Socialpolitik / German Economic Association.
    4. Wang, Hua & Liao, Lingtao & Wu, Ji (George), 2023. "Robot adoption and firm's capacity utilization: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    5. Vijaya Krishna Kanaparthi, 2023. "Examining the Plausible Applications of Artificial Intelligence & Machine Learning in Accounts Payable Improvement," FinTech, MDPI, vol. 2(3), pages 1-14, July.
    6. Castex, Gonzalo & (Stanley) Cho, Sang-Wook & Dechter, Evgenia, 2022. "The decline in capital-skill complementarity," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    7. Zsofia Barany & Christian Siegel, 2021. "Engines of sectoral labor productivity growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 304-343, January.
    8. M. Battisti & M. Del Gatto & A. F. Gravina & C. F. Parmeter, 2021. "Robots versus labor skills: a complementarity/substitutability analysis," Working Paper CRENoS 202104, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
    9. Uluc Aysun & Melanie Guldi & Adam Honig & Zeynep Yom, 2020. "R&D, Market Power and the Cyclicality of Employment," Villanova School of Business Department of Economics and Statistics Working Paper Series 47, Villanova School of Business Department of Economics and Statistics.
    10. Pena, Werner & Siegel, Christian, 2023. "Routine-biased technical change, structure of employment, and cross-country income differences," CEPR Discussion Papers 18366, C.E.P.R. Discussion Papers.
    11. Uluc Aysun & Sami Alpanda, 2023. "The cyclicality of income distribution and innovation induced growth," Working Papers 2023-01, University of Central Florida, Department of Economics.
    12. Uwe Thuemmel, 2023. "Optimal Taxation of Robots," Journal of the European Economic Association, European Economic Association, vol. 21(3), pages 1154-1190.
    13. Wenbo Zhu, 2022. "Hollowing Out and Slowing Growth: the Role of Process Innovations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 217-236, July.
    14. MUKOYAMA Toshihiko & TAKAYAMA Naoki & TANAKA Satoshi, 2023. "Occupational Reallocation Within and Across Firms: Implications for labor-market polarization," Discussion papers 23051, Research Institute of Economy, Trade and Industry (RIETI).
    15. Maya Eden & Paul Gaggl, 2019. "Capital Composition and the Declining Labor Share," CESifo Working Paper Series 7996, CESifo.
    16. Noritaka Kudoh & Hiroaki Miyamoto, 2021. "Robots and Unemployment," Working Papers SDES-2021-5, Kochi University of Technology, School of Economics and Management, revised May 2021.
    17. Kazunobu HAYAKAWA & Sasatra SUDSAWASD, 2024. "Impacts of Trade Diversion from China in the United States Market on Wages in a Third Country: Evidence from Thailand," Working Papers DP-2024-26, Economic Research Institute for ASEAN and East Asia (ERIA).
    18. Alvaro von Borries & Markus Grillitsch & Karl-Johan Lundquist, 2024. "Structural transformation, the knowledge economy, and the geography of low-income work," Journal of Economic Geography, Oxford University Press, vol. 24(2), pages 285-308.
    19. Chen, Chaoran, 2020. "Capital-skill complementarity, sectoral labor productivity, and structural transformation," Journal of Economic Dynamics and Control, Elsevier, vol. 116(C).

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    More about this item

    Keywords

    Job polarization; Investment specific technological change; Occupational tasks; Occupational choice;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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