No. 888: Horizontal and Vertical Polarization: Task-Specific Technological Change in a Multi-Sector Economy
Sang Yoon (Tim) Lee Queen Mary University of London and CEPR Yongseok Shin Washington University in St. Louis, Federal Reserve Bank of St. Louis and NBER
July 2, 2019
Abstract
We construct a multi-layer model of skills, occupations, and sectors. Technological progress among middle-skill occupations raises the employment shares and relative wages of lower- and higher-skill occupations (horizontal polarization), and those of managers over workers (vertical polarization). Polarization is faster within sectors that rely more on middle-skill workers, endogenously boosting their TFP. This shrinks their employment and output shares (structural change) if sector outputs are complementary. We empirically validate our theoretical predictions, and show that task-specific technological progress, which was faster for routine-manual tasks and slower for interpersonal tasks, played a major role in transforming the U.S. economy since 1980.
J.E.L classification codes: J24, J31, L16, O14, O33
Keywords: job polarization, structural change, wage inequality