Labor Market Polarization Research Articles

Occupational reallocation within and across firms: Implications for labor market polarization

This study analyzes how labor market frictions interact with firms’ decisions to reallocate workers across different occupations during labor market polarization. We compare the patterns of occupational reallocation within and across firms in the US and Germany in recent years. We find within-firm reallocation contributes significantly to the decline in employment in routine occupations in Germany, but much less so in the US. We construct a general equilibrium model of firm dynamics and find the model with different firing taxes can replicate the difference in firm-level adjustment patterns across these countries. We conduct two counterfactual experiments for each country, highlighting the different roles played by the within-firm cost of reorganizing the occupational mix and across-firm frictions created by firing taxes. The results suggest the latter plays a more significant role in labor market polarization. Higher firing costs would lead to greater and faster polarization in the US.

Social Inequality in the Age of AI: Implications for Labor, Wage Distribution, and Worker Power

This article critically examines the multifaceted impact of artificial intelligence (AI) on social stratification, situated within the broader historical context of automation-driven productivity advances. Drawing on empirical evidence and evolving theoretical frameworks, we elucidate the intricate dynamics of labor market transformation, skill obsolescence, and wage distribution in the nascent AI epoch. We employ a nuanced task-based approach to move beyond simplistic dichotomies of skill-biased technological change, offering a granular understanding of AI-induced labor market polarization. Our analysis reveals that AI is reshaping the contours of inequality through complex interactions of skill restructuring, wage decoupling from productivity, and shifts in worker bargaining power. We argue that the current trajectory of AI development may accelerate capital-biased technological change, potentially exacerbating existing inequalities. This article not only contributes to the scholarly discourse on technological unemployment and income inequality but also serves as a foundation for evidence-based policymaking in navigating the uncharted territories of human-AI interaction.

Devaluation for whom? Feminization and wages in an economically polarized labor market, 2003–2019

Abstract Scholars have found that as the proportion of female workers in an occupation grows, wages generally decline. Yet, we know little about how this gender inequality intersects with other labor market inequalities. This study evaluates the feminization-wage relationship of an increasingly economically polarized post-2000 US labor market. First, I hypothesize that the negative effect of feminization on wages has diminished in high-skilled occupations due to the declining prejudice against (highly educated) women and increasing requirements for higher education, which functions as a form of social closure. Second, because of the increasing demand for “people skills” in higher-skilled occupations and their association with women, workers in higher-skilled occupations that require these skills may experience positive effects of feminization on wages. Not all people skills, however, are associated with women and similarly rewarded. Thus, I examine three people skills—persuasion, managerial, and sociability—that have different gender stereotypes. I test hypotheses using occupational-level fixed-effects models with individual-level data from the American Community Survey 2003–2019 (N = 15,996,526) and time-varying occupational-level data from the Occupational Information Network 2003–2019 (N = 460). Results show that for workers in occupations requiring more than sixteen years of education, feminization corresponds with higher wages. Additionally, the positive feminization-wage relationship is larger in occupations with a high demand for a gender-neutral people skill, persuasion. This moderation effect is not found for sociability and managerial skills, which are associated with women and men, respectively. This study calls for greater attention to how labor market polarization has shaped gender inequality.

Multidimensional heterogeneity and matching in a frictional labor market — An application to polarization

This paper examines the role that changes in production technology, namely computerization, have played on labor market inequality in the US from the late 1980s to the 2010s. It also demonstrates that such technological change is consistent with the timing of labor market polarization in the US, including the end of the decline in 50/10 wage percentile ratio and the slowdown of employment growth in high-wage jobs from the 2000s. The paper does so using a model with two key ingredients: 1) directed search and 2) two-sided multidimensional heterogeneity. Calibration results show that the complementarity between a workers’ cognitive skills and the cognitive task intensity of jobs increased while that between manual skill and tasks did not. The full model can fully account for the rise and fall of the 90/50 and 50/10 wage percentile ratios respectively. It also generates 72.6 percent of the rise in employment share of high-paying jobs relative to middling jobs and 69 percent of the fall in employment share of middling jobs relative to low-paying jobs. The paper suggests that the end of the decline in the 50/10 wage ratio may be due to rank-switching between workers across the wage distribution from the 2000s, while the slowdown of employment growth in high-wage jobs may result from the trade-off between the returns to applying for high-wage jobs and the likelihood of being hired.

The Mutual Influence of Labour Market Polarisation, Wage Polarisation and Political Polarisation in the European Union

Abstract The aim of the paper is to prove a hypothesis concerning the dependence of the political polarisation of the European Union on recent developments in labour market structure. The labour market is undergoing changes that stem from technological progress as well as outsourcing of low-skill activities, which are causing an increase in labour market and wage polarisation. The premise is that the depopulation of the middle class is increasing political polarisation. The hypothesis is tested on a sample of 27 European Union countries from 1990 to the present using OLS with fixed effects regression analysis. Political polarization is represented by an own constructed political polarization index based on the ideological division of political parties’ data of the ParlGov project (2022). The index is constructed by combining the election results and four ideological spectrums. In conclusion, the dependence of political polarisation on labour market polarisation and wage polarisation is rejected.

Labor Market Polarization and Student Debt

Labor Market Polarization and Student Debt

The artificial intelligence shock and socio-political polarization

Are artificial intelligence's complimenting and displacing labor market effects corresponding with similar polarization in socio-political beliefs? This study answers this question by analyzing survey data of 26,311 Americans, collected from the American National Election Survey. Data is deployed alongside 22-category Manyika et al. (2017) ‘automation potential’ estimates (proxying for ‘displacement due to AI’) and Michael Webb (2019) ‘AI-exposure’ estimates (proxying for labor complimented by AI). The study summarizes the demographic characteristics and socio-political views of the highly AI-exposed and automation-susceptible groups. It deploys a year and region fixed effects OLS model, with standard error clustered at the occupation level. This study then finds that automation-susceptible ‘losers’ of AI are more likely to be culturally conservative and economically left-leaning. Those complimented by AI are more likely to hold socially liberal and fiscally conservative views. The results suggest AI's labor market polarization may accompany radicalization and socio-political divergence, with implications for vote capture and representation of working-class interests in government.

Upward job mobility in local economies

Abstract This article studies upward job mobility in different types of local economies. Relying on Swedish register data, we disentangle the impacts stemming from local labour market size, the presence of related industries and occupations and the size of own-industry and own-occupation concentrations. Results show that the local economic structure is important in shaping upward mobility outcomes. However, we observe different impacts from local industry-versus-occupation agglomerations and depending on whether people move from lower-paid or higher-paid jobs. The results have important implications for understanding the drivers of upward job mobility in times of increasing labour market polarization and regional divergence.

Welfare state decommodification and population health.

A generous welfare state decommodifies social relations and frees citizens from relying excessively on markets. We argue that decommodification is associated with population health in two ways: directly, as it provides better social protection to households and indirectly, as it mitigates health-damaging labour market polarization and reduces the incidence of labour market risks. Using time-series cross-sectional quantitative analysis for 21 OECD countries from 1971 to 2010, we observe a negative relationship between decommodification and the age-standardized death rate. We then analyze three correlates of decommodification—income redistribution, labour market polarization and the reduction of labour market risk incidence—and find that only the latter two are associated with population health. Higher labour market polarization, measured by the share of market income allocated to the richest decile relative to the share of the poorest decile, is associated with a higher death rate. A new measure of risk reduction, the degree to which the welfare state reduces the prevalence of large income losses, is also associated with lower death rates, especially for men. Welfare state decommodification thus contributes to population health directly, and indirectly, via the attenuation of labour market polarization and the mitigation of labour market risks.

Psychological Capital as a Determinant of Organisational Citizenship Behaviour amidst Industrial Revolution 4.0: Mediating Role of Transfer of Training

Industrial Revolution 4.0 offers substantial value in elevating economic, environmental, and living standards (Schwab, 2016). Nevertheless, challenges in terms of feasibility and social acceptance must be addressed (Horváth & Szabó, 2019; Kadir et al., 2019) to warrant successful transformation (Galati & Bigliardi, 2019; Raj et al., 2019). The lingering issue of labour market polarisation across past industrial revolutions have compromised the degree of social acceptance (Galati & Bigliardi, 2019; Kovacs, 2018; Müller, 2019; Schwab, 2016)- particularly among youth who are most vulnerable yet playing increasingly prominent roles in the economy. Effective transfer of training hedges on the exhibition of the right psychological states. Therefore, this study seeks to examine the effects of psychological capital (PsyCap) in determining transfer of training (TOT) and organisational citizenship behaviour (OCB) among youth participants of Industry Revolution 4.0 in Sarawak, which is the largest and only state with a comprehensive digital economy blueprint in Malaysia. The study further examines the mediating effects of TOT (a job resource) on organisational citizenship behaviour. Keywords: Industrial Revolution 4.0 ; organisational citizenship behaviour; psychological capital; transfer of training; youth

Tasks, occupations and slowbalisation: on the limits of fragmentation

AbstractFollowing the trade collapse in 2009, Globalisation has recovered but the growth rate slowed down compared to the preceding period of Hyper Globalisation. The persistence of this slowdown is remarkable. We argue that increased awareness of firms for the costs of involvement in global supply chains can explain the recent developments in trade flows. We formalise the existence, length and consequences of changes in fragmentation cost along global supply chains. From a theoretical point of view, we allow tasks to be a combination of different occupations while the model endogenises production fragmentation, allowing for multiple production stages in multiple countries, while remaining tractable. From an empirical point of view, the model explains both the period of Hyper Globalisation and the subsequent Slowbalisation in terms of changing fragmentation costs along global supply chains. The model is also consistent with developments regarding labour market polarisation associated with modern globalisation: the labour market position of medium-skilled workers in advanced countries has deteriorated relative to high- and low-skilled workers, which can be understood by changing global supply chains. Our model implies, however, that even with zero fragmentation costs the demand for certain occupations does not fall to zero for any country.

Offshoring, Automation, Low-Skilled Immigration, and Labor Market Polarization

We show that the observed polarization of employment toward the high- and low-skill occupations disappears when only native workers are considered. Instead, low-skilled immigration explains employment growth at the low tail of the skill distribution. Moreover, while employment rose, wages remained subdued in low-skill occupations. A data-disciplined structural model accounts for this evidence: Offshoring and automation negatively affect middle-skill occupations but enhance employment and wages for the high-skilled. Low-skill employment is sheltered from offshoring and automation, as it consists of manual, non-tradable services. However, low-skilled immigration depresses low-skill wages and encourages native workers to move into skilled occupations through training. (JEL F16, J24, J31, J61, M53)

The Dynamics of Labour Market Polarization in Chile: An Analysis of the Link Between Technical Change and Informality

The Dynamics of Labour Market Polarization in Chile: An Analysis of the Link Between Technical Change and Informality

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

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.

Fixing capitalism’s good jobs problem

AbstractConventional welfare state policies that centre on education, training, progressive taxation, and social insurance are inadequate to address labour market polarization, which is capitalism’s most pressing inclusion challenge at present. We propose a strategy aimed directly at the productive sphere of the economy and targeting an increase in the supply of ‘good jobs’. The main elements of this strategy are: (i) active labour market policies linked to employers; (ii) industrial and regional policies directly targeting the creation of good jobs; (iii) innovation policies that incentivize labour-friendly technologies; (iv) international economic policies that facilitate the maintenance of high domestic labour/social standards. These elements are connected both by their objective—expanding the number of good jobs—and by a new approach to regulation that is collaborative and iterative rather than top-down and prescriptive. We emphasize the importance of new institutional arrangements that enable strategic long-term information exchange and cooperation between governments and firms.

Developing China\u2019s workforce skill taxonomy reveals extent of labor market polarization

China, the world’s second largest economy, is transitioning into an advanced, knowledge-based economy after four decades of rapid economic development. However, China still lacks a detailed understanding of the skills that underly the Chinese labor force, and the development and spatial distribution of these skills. Similar data has proven essential in other contexts; for example, the US standardized skill taxonomy, Occupational Information Network (O*NET), played an important role in understanding the dynamics of manufacturing and knowledge-based work, and the potential risks from automation and outsourcing. Here, we use Machine Learning techniques to bridge this gap, creating China’s first workforce skill taxonomy, and map it to O*NET. This enables us to reveal workforce skill polarization into social-cognitive skills and sensory-physical skills, and to explore China’s regional inequality in light of workforce skills, and compare it to traditional metrics such as education. We build an online tool for the public and policy makers to explore the skill taxonomy: skills.sysu.edu.cn. We also make the taxonomy dataset publicly available for other researchers.

Hollowing out and slowing growth: The role of process innovations

I develop an endogenous growth model with skill acquisition, which can simultaneously account for labour market polarization and a slow down in labour productivity growth. When a new technology enters the economy, it requires implementation by high-skilled workers. Over time, process innovation makes the technology more user-friendly so that lower skilled workers can also operate it. Process innovation contributes to growth by increasing the range of technologies that a lower skilled worker can operate. It also reallocates labour demand for different skill-groups and thereby affects the income distribution. Skill can be acquired through a costly learning activity and workers face different learning costs. I calibrate the model to match the European labour market in 2000 and 2014 respectively. I show that when the rate of process innovation decreases, labour productivity growth slows down and wage and employment become polarized.

Inflation Inequality: Measurement, Causes, and Policy Implications

Does inflation vary across the income distribution? This article reviews the growing literature on inflation inequality, describing recent advances and opportunities for further research in four areas. First, new price index theory facilitates the study of inflation inequality. Second, new data show that inflation rates decline with household income in the United States. Accurate measurement requires granular price and expenditure data because of aggregation bias. Third, new evidence quantifies the impacts of innovation and trade on inflation inequality. Contrary to common wisdom, empirical estimates show that the direction of innovation is a significant driver of inflation inequality in the United States, whereas trade has similar price effects across the income distribution. Fourth, inflation inequality and non-homotheticities have important policy implications. They transform cost-benefit analysis, optimal taxation, the effectiveness of stabilization policies, and our understanding of secular macroeconomic trends—including structural change, the decline in the labor share and interest rates, and labor market polarization.

Skill endowment, routinisation and digital technologies: evidence from U.S. Metropolitan Areas

ABSTRACT Scholars and policy makers frame the debate on labour market polarisation by emphasising the role of key drivers such as international trade and of technological change. The present paper explores these themes from a different perspective and inquires whether de-routinisation has harmed local innovation capacity. Our empirical study builds on the literature on learning-by-doing and incremental innovation and focuses on advanced manufacturing technologies (AMTs) in US Metropolitan Statistical Areas over the period 1990–2012. Results provide support to the hypothesis that de-routinisation is associated with a generalised decline of local innovation performance, particularly in AMTs.

Offshoring, computerization, labor market polarization and top income inequality

This paper proposes a model of occupational choice with heterogeneous agents in terms of human capital to quantify the role of offshoring and computerization in labor market polarization and increased top income inequality. We find that both offshoring and computerization played a major role regarding labor market polarization in the US over the period 1975–2008. We further show that the last decades can be decomposed into two subperiods. Computerization is the main driver of labor market polarization from 1975 to the mid 1990s, after which globalization (through decreased costs of offshoring) explains more than 70% of job and wage polarization. Our model can also explain around 40% of the observed increase in top income inequality since 1975.