The Role of Firms in Shaping Job Polarization

What shapes aggregate job polarization? The literature has emphasized the role of routinebiased technological change (RBTC). Through the lens of general equilibrium model that explicitly accounts for firm heterogeneity, I show that labor supply factors are relatively more important than RBTC in explaining job polarization. RBTC induces substitution of routine occupations within firms, which decreases the share of routine occupations in the aggregate. However, in contrast to a representative firm framework, it also increases the productivity of large routine intensive firms, which increases their aggregate employment share. Counterfactual experiments using the estimated model show that the net effect is to decrease the aggregate share of routine occupations by 2.34 pp, approximately 21.7% of the total decline. Substitution channel decreases the aggregate employment share of routine occupations by 5.77 pp while the productivity channel increases it by 3.38 pp. I find that the shift in the educational composition of the labor force and shifts in worker preferences explain the rest of the decline in the aggregate employment share of routine occupations.