IDEAS home Printed from https://ideas.repec.org/p/rim/rimwps/15-42.html
   My bibliography  Save this paper

Learning New Technology: The Polarization of the Wage Distribution

Author

Listed:
  • Manuel Hidalgo-Perez

    (Department of Economics, Universidad Pablo de Olavide, USA)

  • Benedetto Molinari

    (Department of Economics, Universidad Pablo de Olavide, USA; The Rimini Centre for Economic Analysis, Italy)

Abstract

This paper revisits the relationship between wage inequality and technological progress. By applying counterfactual quantile regressions to historic U.S. data, we show that the reduction of wage inequality among low-wage workers generated by routinization-biased technical change was fully driven by a reduction of within-group inequality, which was determined by more homogeneous remunerations paid to routine workers. Changes in wage differentials between workers performing technology-neutral and technology-substitute tasks played instead a negligible role, which casts some doubt on a theory of technical change operating through a labor-demand channel. To reconcile the theory with data, we develop a model in which skill-heterogeneous workers face endogenous occupational choices and learning costs in connection with operating a new technology. In this model, when wage differentials are fixed technical change still generates an empirically-consistent non-monotone effect on wage inequality by affecting the average levels of skills within different groups of workers.

Suggested Citation

  • Manuel Hidalgo-Perez & Benedetto Molinari, 2015. "Learning New Technology: The Polarization of the Wage Distribution," Working Paper series 15-42, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:15-42
    as

    Download full text from publisher

    File URL: http://www.rcea.org/RePEc/pdf/wp15-42.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard B. Freeman & Lawrence F. Katz, 1995. "Introduction and Summary," NBER Chapters, in: Differences and Changes in Wage Structures, pages 1-22, National Bureau of Economic Research, Inc.
    2. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    3. Maarten Goos & Alan Manning & Anna Salomons, 2009. "Job Polarization in Europe," American Economic Review, American Economic Association, vol. 99(2), pages 58-63, May.
    4. Moshe Buchinsky, 1998. "Recent Advances in Quantile Regression Models: A Practical Guideline for Empirical Research," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 88-126.
    5. Oded Galor & Omer Moav, 2000. "Ability-Biased Technological Transition, Wage Inequality, and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(2), pages 469-497.
    6. Guido Matias Cortes, 2016. "Where Have the Middle-Wage Workers Gone? A Study of Polarization Using Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 34(1), pages 63-105.
    7. 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.
    8. Fane Groes & Philipp Kircher & Iourii Manovskii, 2015. "The U-Shapes of Occupational Mobility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 659-692.
    9. 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.
    10. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    11. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 367-397.
    12. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    13. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
    14. Bartel, Ann P & Sicherman, Nachum, 1998. "Technological Change and the Skill Acquisition of Young Workers," Journal of Labor Economics, University of Chicago Press, vol. 16(4), pages 718-755, October.
    15. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 12, pages 1043-1171, Elsevier.
    16. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Rising Wage Inequality: The Role of Composition and Prices," Harvard Institute of Economic Research Working Papers 2096, Harvard - Institute of Economic Research.
    17. Freeman, Richard B. & Katz, Lawrence F. (ed.), 1995. "Differences and Changes in Wage Structures," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226261607.
    18. Maarten Goos & Alan Manning, 2007. "Lousy and Lovely Jobs: The Rising Polarization of Work in Britain," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 118-133, February.
    19. Firpo, Sergio & Fortin, Nicole M. & Lemieux, Thomas, 2011. "Occupational Tasks and Changes in the Wage Structure," IZA Discussion Papers 5542, Institute of Labor Economics (IZA).
    20. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
    21. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
    22. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    23. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-1381, September.
    24. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guido Matías Cortés & Manuel Hidalgo-Pérez, 2015. "Changes in the Return to Skills and the Variance of Unobserved Ability," Working Papers 15.15, Universidad Pablo de Olavide, Department of Economics.

    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. Manuel A. Hidalgo-Pérez & Benedetto Molinari, 2022. "The effect of early automation on the wage distribution with endogenous occupational choices," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(3), pages 1055-1082, October.
    2. Koomen, Miriam & Backes-Gellner, Uschi, 2022. "Occupational tasks and wage inequality in West Germany: A decomposition analysis," Labour Economics, Elsevier, vol. 79(C).
    3. Koomen, Miriam & Backes-Gellner, Uschi, 2022. "Occupational Tasks and Wage Inequality in Germany: A Decomposition Analysis," IZA Discussion Papers 15702, Institute of Labor Economics (IZA).
    4. Salverda, Wiemer & Checchi, Daniele, 2014. "Labour-Market Institutions and the Dispersion of Wage Earnings," IZA Discussion Papers 8220, Institute of Labor Economics (IZA).
    5. Ariell Reshef, 2013. "Is Technological Change Biased Towards the Unskilled in Services? An Empirical Investigation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 312-331, April.
    6. Van Reenen, John, 2011. "Wage inequality, technology and trade: 21st century evidence," Labour Economics, Elsevier, vol. 18(6), pages 730-741.
    7. David Hémous & Morten Olsen, 2022. "The Rise of the Machines: Automation, Horizontal Innovation, and Income Inequality," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(1), pages 179-223, January.
    8. Fabián Slonimczyk, 2013. "Earnings inequality and skill mismatch in the U.S.: 1973–2002," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(2), pages 163-194, June.
    9. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2005. "Trends in U. S. Wage Inequality: Re-Assessing the Revisionists," Harvard Institute of Economic Research Working Papers 2095, Harvard - Institute of Economic Research.
    10. Thomas Lemieux, 2008. "The changing nature of wage inequality," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(1), pages 21-48, January.
    11. Eisenbarth, Anthony & Chen, Zhou Fu, 2022. "The evolution of wage inequality within local U.S. labor markets," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 56, pages 1-2.
    12. Maarten Goos & Melanie Arntz & Ulrich Zierahn & Terry Gregory & Stephanie Carretero Gomez & Ignacio Gonzalez Vazquez & Koen Jonkers, 2019. "The Impact of Technological Innovation on the Future of Work," JRC Working Papers on Labour, Education and Technology 2019-03, Joint Research Centre.
    13. Rebekka Christopoulou & Theodora Kosma, 2009. "Skills and Wage Inequality in Greece: Evidence from Matched Employer-Employee Data, 1995-2002," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 26, Hellenic Observatory, LSE.
    14. Paul Beaudry & David A. Green & Benjamin M. Sand, 2016. "The Great Reversal in the Demand for Skill and Cognitive Tasks," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 199-247.
    15. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(2), pages 843-881.
    16. Ghosh, Pallab Kumar, 2014. "The contribution of human capital variables to changes in the wage distribution function," Labour Economics, Elsevier, vol. 28(C), pages 58-69.
    17. Jimeno, Juan F. & Lamo, Ana & Christopoulou, Rebekka, 2010. "Changes in the wage structure in EU countries," Working Paper Series 1199, European Central Bank.
    18. Wang, Xiupeng, 2020. "Labor market polarization in Britain and Germany: A cross-national comparison using longitudinal household data," Labour Economics, Elsevier, vol. 65(C).
    19. Cavenaile, Laurent, 2021. "Offshoring, computerization, labor market polarization and top income inequality," Journal of Macroeconomics, Elsevier, vol. 69(C).
    20. Fonseca, Tiago & Lima, Francisco & Pereira, Sonia C., 2018. "Job polarization, technological change and routinization: Evidence for Portugal," Labour Economics, Elsevier, vol. 51(C), pages 317-339.

    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    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:rim:rimwps:15-42. 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: Marco Savioli (email available below). General contact details of provider: https://edirc.repec.org/data/rcfeait.html .

    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.