IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2501.15809.html
   My bibliography  Save this paper

Skill-Based Labor Market Polarization in the Age of AI: A Comparative Analysis of India and the United States

Author

Listed:
  • Venkat Ram Reddy Ganuthula
  • Krishna Kumar Balaraman

Abstract

This paper examines labor market polarization through a comparative analysis of skill-based employment and wage distributions in India and the United States during 2018-2023, with particular attention to differential automation risks and AI preparedness. Using detailed occupation-level data, automation risk metrics, and a series of statistical tests including wage premium analysis, employment share tests, and wage-employment regressions, we document significant structural differences in labor markets between developing and developed economies. Our analysis yields four key findings. First, we find statistically significant differences in employment distribution patterns, with India showing disproportionate concentration in low-skill employment compared to the US, particularly in occupations with high automation risk. Second, regression analysis reveals that wage premiums differ systematically between the two countries, with significantly larger skill-based wage gaps in India. Third, we find robust evidence of a negative relationship between employment size and wages, suggesting stronger labor supply effects in developing economies. Fourth, analysis of occupation-specific automation risk reveals that developing economies face a "double vulnerability" - concentration of employment in both low-skill occupations and jobs with higher automation potential, complicated by lower AI preparedness scores. These findings provide novel empirical evidence on how development stages influence labor market polarization patterns and carry important implications for skill development and technology adoption policies in developing economies. Our results suggest that traditional approaches to labor market development may need significant modification to account for the differential impacts of AI across development stages.

Suggested Citation

  • Venkat Ram Reddy Ganuthula & Krishna Kumar Balaraman, 2025. "Skill-Based Labor Market Polarization in the Age of AI: A Comparative Analysis of India and the United States," Papers 2501.15809, arXiv.org, revised Feb 2025.
  • Handle: RePEc:arx:papers:2501.15809
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2501.15809
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Autor & David Dorn & Gordon Hanson & Kaveh Majlesi, 2020. "Importing Political Polarization? The Electoral Consequences of Rising Trade Exposure," American Economic Review, American Economic Association, vol. 110(10), pages 3139-3183, October.
    2. Korinek, Anton & Stiglitz, Joseph, 2021. "Artificial Intelligence, Globalization, and Strategies for Economic Development," CEPR Discussion Papers 15772, C.E.P.R. Discussion Papers.
    3. Jorge Alvarez & Felipe Benguria & Niklas Engbom & Christian Moser, 2018. "Firms and the Decline in Earnings Inequality in Brazil," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 149-189, January.
    4. Daron Acemoglu & Pascual Restrepo, 2022. "Tasks, Automation, and the Rise in U.S. Wage Inequality," Econometrica, Econometric Society, vol. 90(5), pages 1973-2016, September.
    5. George Psacharopoulos & Harry Anthony Patrinos, 2018. "Returns to investment in education: a decennial review of the global literature," Education Economics, Taylor & Francis Journals, vol. 26(5), pages 445-458, September.
    6. David H. Autor & David Dorn, 2013. "The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market," American Economic Review, American Economic Association, vol. 103(5), pages 1553-1597, August.
    7. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    8. Daron Acemoglu & Pascual Restrepo, 2019. "Automation and New Tasks: How Technology Displaces and Reinstates Labor," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 3-30, Spring.
    9. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    10. David Card & Francis Kramarz & Thomas Lemieux, 1999. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 843-877, August.
    11. Diego Comin & Martí Mestieri, 2018. "If Technology Has Arrived Everywhere, Why Has Income Diverged?," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(3), pages 137-178, July.
    12. Frey, Carl Benedikt & Osborne, Michael A., 2017. "The future of employment: How susceptible are jobs to computerisation?," Technological Forecasting and Social Change, Elsevier, vol. 114(C), pages 254-280.
    13. Pinelopi Koujianou Goldberg & Nina Pavcnik, 2007. "Distributional Effects of Globalization in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 45(1), pages 39-82, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cheng, Can & Luo, Jiayu & Zhu, Chun & Zhang, Shangfeng, 2024. "Artificial intelligence and the skill premium: A numerical analysis of theoretical models," Technological Forecasting and Social Change, Elsevier, vol. 200(C).
    2. Kostøl, Fredrik B. & Svarstad, Elin, 2023. "Trade Unions and the Process of Technological Change," Labour Economics, Elsevier, vol. 84(C).
    3. Alonso, Cristian & Berg, Andrew & Kothari, Siddharth & Papageorgiou, Chris & Rehman, Sidra, 2022. "Will the AI revolution cause a great divergence?," Journal of Monetary Economics, Elsevier, vol. 127(C), pages 18-37.
    4. Zhang, Yun & Samaniego, Roberto & Rodrigo, Rodimiro, 2025. "Robots and Inequality Between and Within Occupations," SocArXiv gtbm4_v1, Center for Open Science.
    5. Fabio Montobbio & Jacopo Staccioli & Maria Enrica Virgillito & Marco Vivarelli, 2022. "The empirics of technology, employment and occupations: lessons learned and challenges ahead," DISCE - Working Papers del Dipartimento di Politica Economica dipe0028, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    6. Gries, Thomas & Naudé, Wim, 2020. "Artificial Intelligence, Income Distribution and Economic Growth," IZA Discussion Papers 13606, Institute of Labor Economics (IZA).
    7. David Kunst, 2019. "Deskilling among Manufacturing Production Workers," Tinbergen Institute Discussion Papers 19-050/VI, Tinbergen Institute, revised 30 Dec 2020.
    8. Montobbio, Fabio & Staccioli, Jacopo & Virgillito, Maria Enrica & Vivarelli, Marco, 2022. "Robots and the origin of their labour-saving impact," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    9. Gries, Thomas & Naudé, Wim, 2022. "Modelling artificial intelligence in economics," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 56, pages 1-12.
    10. Fernández-Macías, Enrique & Klenert, David & Antón, José-Ignacio, 2021. "Not so disruptive yet? Characteristics, distribution and determinants of robots in Europe," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 76-89.
    11. Cali,Massimiliano & Presidente,Giorgio, 2021. "Automation and Manufacturing Performance in a Developing Country," Policy Research Working Paper Series 9653, The World Bank.
    12. Krenz, Astrid & Prettner, Klaus & Strulik, Holger, 2021. "Robots, reshoring, and the lot of low-skilled workers," European Economic Review, Elsevier, vol. 136(C).
    13. Usabiaga, Carlos & Núñez, Fernando & Arendt, Lukasz & Gałecka-Burdziak, Ewa & Pater, Robert, 2022. "Skill requirements and labour polarisation: An association analysis based on Polish online job offers," Economic Modelling, Elsevier, vol. 115(C).
    14. Roberta Capello & Simona Ciappei & Camilla Lenzi, 2024. "Unveiling the automation—wage inequality nexus within and across regions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 73(4), pages 1729-1756, December.
    15. Fredrik B. Kostøl, 2024. "Do unions increase participation in further education?," British Journal of Industrial Relations, London School of Economics, vol. 62(3), pages 614-639, September.
    16. Fierro, Luca Eduardo & Caiani, Alessandro & Russo, Alberto, 2022. "Automation, Job Polarisation, and Structural Change," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 499-535.
    17. Zhang, Xinchun & Sun, Murong & Liu, Jianxu & Xu, Aijia, 2024. "The nexus between industrial robot and employment in China: The effects of technology substitution and technology creation," Technological Forecasting and Social Change, Elsevier, vol. 202(C).
    18. Nikolova, Milena & Cnossen, Femke & Nikolaev, Boris, 2024. "Robots, meaning, and self-determination," Research Policy, Elsevier, vol. 53(5).
    19. Dawei (David) Zhang & Gang Peng & Yuliang Yao & Tyson R. Browning, 2024. "Is a College Education Still Enough? The IT-Labor Relationship with Education Level, Task Routineness, and Artificial Intelligence," Information Systems Research, INFORMS, vol. 35(3), pages 992-1010, September.
    20. Azio Barani, 2021. "Innovazione tecnologica e lavoro: automazione, occupazione e impatti socio-economici," QUADERNI DI ECONOMIA DEL LAVORO, FrancoAngeli Editore, vol. 0(114), pages 51-79.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2501.15809. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.