The exposure to routinization: Labor market implications for developed and developing economies

Abstract

Polarization is the structural phenomenon observed over the last three decades where wages and employment of high- and low-skill labor rise relative to middle-skilled labor. Evidence that the automation of routine tasks has contributed to polarization has been documented for many developed economies, but little is known about its incidence in developing economies. We propose a measure of the exposure to routinization—that is, the risk of displacing labor by automation—and assemble several facts that link these exposures with the prospects of polarization. Drawing on exposures for 85 countries since 1990, we establish that: (1) developing economies are significantly less exposed to routinization than their developed counterparts; (2) the initial exposure to routinization is a strong predictor of the long-run exposure; and (3) among countries with high initial exposures to routinization, polarization dynamics have been strong causing subsequent exposures to decline; while among those with low initial exposure, structural transformation has prevailed resulting in raising exposures. Although we find little evidence of polarization in developing countries thus far, as their exposure to routinization rises, the risks of future labor market polarization will escalate with potentially significant consequences for productivity, growth, and distribution.