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The Great Reversal in the Demand for Skill and Cognitive Tasks
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What explains the current low rate of employment in the US? While there has been substantial debate over this question in recent years, we believe that considerable added insight can be derived by focusing on changes in the labor market at the turn of the century. In particular, we argue that in about the year 2000, the demand for skill (or, more specifically, for cognitive tasks often associated with high educational skill) underwent a reversal. Many researchers have documented a strong, ongoing increase in the demand for skills in the decades leading up to 2000. In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together. In order to understand these patterns, we offer a simple extension to the standard skill biased technical change model that views cognitive tasks as a stock rather than a flow. We show how such a model can explain the trends in the data that we present, and offers a novel interpretation of the current employment situation in the US.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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... So its demand increased rapidly. However, with the maturity of this investment, the demand for cognitive tasks began to narrow as computers also started to replace some human interactions (Beaudry et al., 2016). In the recent past, automation using explicit rules or manually written computer algorithms were limited to areas where there was explicit knowledge to codify. ...
We document an increase in the likelihood of women working in a good job (those with higher wages) in the Brazilian high-skilled labor market in the period of 1994-2017. We highlight the importance of social skills in explaining why the growing demand for high-skilled workers has not been equal across gender. To do so, we built a novel Brazilian Classification of Occupations (CBO) rating based on skill content compatible with the O*NET task index. Our results show a positive relationship between social skills and the female share of occupations, which suggests that women have been choosing professions intensive in this skill. We also provide results consistent with neuroscience literature, which has reported that women have a comparative advantage in performing tasks that require social skills. Finally, we find that the relevance of such skills in determining wages is higher for women than men in recent years.
... Medrano-Adan et al. (2018) model the distribution of labour income, including the salaries of employees, the income of the solo selfemployed and the profits of entrepreneur-managers using an occupational choice model with supervision hierarchy. Garicano and Rossi-Hansberg (2006) apply the knowledge hierarchy model to explain some of the patterns observed in the changes in wage inequality attributed to the use of computers that reduce employment in occupations intensive in routine tasks and increase it in occupations intensive in cognitive skills (Bresnahan et al. 2002;Autor et al. 2008;Acemoglu and Autor 2011;Goos et al. 2014), which causes the return to cognitive skills to increase over time (Beaudry et al. 2016). 4 This paper models the occupational choice equilibrium with supervision hierarchies to investigate the more specific topic of the relationship between dispersion of skill and dispersion of income across economies, how such a relationship can be moderated by other variables of their respective production and organization technology, and how all these interrelationships should be accounted for in explaining evidence found in research on the determinants of labour income inequality. ...
Occupational choice models predict that, ceteris paribus, countries with higher dispersion of skill will have higher market labour income inequality. However, an extended conclusion from empirical research is that cross-country variations in dispersion of skill explain little of the variation in income inequality. This paper identifies factors related to production and organization technologies that moderate the relationship between dispersion of skill and dispersion of income in occupational choice equilibrium outcomes and that, if not properly accounted for, can bias the results of the empirical studies that explain dispersion of income as a function of dispersion of skill. In particular, comparing equilibrium outcomes from occupational choices in economies that differ in the distribution of skill and in the efficiency of supervision hierarchies, the paper can explain why the US and Sweden have similar labour productivity, but income inequality is higher in the US than in Sweden, and why productivity
is lower and income inequality is higher in Spain than in Sweden.
Since the War on Poverty in the 1960s, the U.S. social safety net has shifted away from direct cash assistance for the lowest-income households and toward tax-based transfers targeted at working families with children. Previous research has assessed this shift by evaluating its effect on the national poverty rate. Doing so, however, overlooks how it may also have led to increased inequality among low-income households. We apply a decomposition framework to measure how changes in taxes/transfers and composition have affected trends in inequality below the poverty line from 1967 to 2019. Income inequality among the poorest households has been volatile since the 1960s, and changes to the American welfare state played a decisive role in expanding or reducing inequality below the poverty line. Unlike in previous decades, after the mid-1990s, the policies that most reduced poverty were also those that most increased inequality among the poor. These findings challenge standard theories regarding the effectiveness of income transfers in reducing poverty by revealing that recent state-led antipoverty efforts have placed the near poor and the deeply poor on divergent paths.
We study the evolution of the cross‐sectional distributions of county‐level per capita income in the United States from 1970 to 2017. We confirm previous findings of convergence in pre‐transfer income during the 1970s and 1980s but present new evidence of rising inequality since the early 1990s, which is characterized by bipolarization. Cross‐county differences in education and industry composition explain much of this recent trend, which almost disappears in post‐transfer incomes. Among the various government transfer programs, medical benefits play the greatest role in making the distribution less unequal.
This study investigates the relationship between information technology (IT) and human labor through the lens of education level, task routineness, and artificial intelligence (AI). It makes use of a comprehensive data set covering 60 U.S. industries from 1998 to 2013. The results show that a college degree may not be sufficient, especially in routine-intensive industries, where a graduate degree may be increasingly necessary to meet the demands of computerized work environments. They also suggest that continuous education and IT skill development are essential for workers to thrive in a technology-driven economy. Governments should continue to support higher education to meet the demands driven by IT implementation, particularly as advanced technologies like AI emerge. Long-term training programs should be established to equip less-educated workers with the necessary skills to navigate technological changes. Additionally, policy makers should be cautious about the potential impact of advanced IT, such as AI, on employment rates and consider the consequences of increasing minimum wage levels, as it may incentivize firms to invest more in automation. Overall, this study emphasizes the need for a comprehensive understanding of the IT-labor relationship, guiding decision making for individuals, firms, educators, and policy makers in adapting to the challenges and opportunities presented by advancing technology.
This paper argues that changes in the returns to occupational tasks have contributed to changes in the wage distribution over the last three decades. Using Current Population Survey (CPS) data, we first show that the 1990s polarization of wages is explained by changes in wage setting between and within occupations, which are well captured by tasks measures linked to technological change and offshorability. Using a decomposition based on Firpo, Fortin, and Lemieux (2009), we find that technological change and deunionization played a central role in the 1980s and 1990s, while offshorability became an important factor from the 1990s onwards.
Using the 2003 National Survey of College Graduates, I examine how immigrants perform relative to natives in activities likely to increase U.S. productivity, according to the type of visa on which they first entered the United States. Immigrants who first entered on a student/trainee visa or a temporary work visa have a large advantage over natives in wages, patenting, commercializing or licensing patents, and publishing. In general, this advantage is explained by immigrants' higher education and field of study, but this is not the case for publishing, and immigrants are more likely to start companies than natives with similar education. Immigrants without U.S. education and who arrived at older ages suffer a wage handicap, which offsets savings to the United States from their having completed more education abroad. Immigrants who entered with legal permanent residence do not outperform natives for any of the outcomes considered.
Because many individuals do not complete their degrees in the standard number of years, previous estimates of diploma effects, which have been based only on an individual's years of education, are biased. Using a data set from a matched sample of the 1991 and 1992 March Current Population Survey that has information on both years of education and diplomas received, this paper improves on earlier estimates and finds that using 'true' information on degree receipt substantially increases estimated sheepskin effects of high school and college degrees. Unlike past research, this paper finds that there are few statistically significant differences in sheepskin effects between race and sex groups. The relative returns to Associates and post-graduate degrees are also examined. Copyright 1996 by MIT Press.
This study examines changes in returns to formal education and cognitive skills over the last 20 years using the 1979 and 1997 waves of the National Longitudinal Survey of Youth. We show that cognitive skills had a 30%-50% larger effect on wages in the 1980s than in the 2000s. Returns to education were higher in the 2000s. These developments are not explained by changing distributions of workers' observable characteristics or by changing labor market structure. We show that the decline in returns to ability can be attributed to differences in the growth rate of technology between the 1980s and 2000s.
Externalities as conventionally defined miss many of the spillovers that are both causes and consequences of the technological changes that underlie economic growth. We introduce a much wider concept called technological complementarities. New general purpose technologies (GPTs) rejuvenate the growth process by creating technological complementarities, which are adequately measured neither by total factor productivity (TFP) nor by externalities. There would be major gains from technological change even if the returns on capital invested in innovation never exceeded the returns on investing in existing technologies so that there were neither externalities nor positive changes in TFP.
This paper shows that wage inequality in West Germany has increased over the past three decades, contrary to common perceptions.
During the 1980s, the increase was concentrated at the top of the distribution; in the 1990s, it occurred at the bottom end
as well. Our findings are consistent with the view that both in Germany and in the United States, technological change is
responsible for the widening of the wage distribution at the top. At the bottom of the wage distribution, the increase in
inequality is better explained by episodic events, such as supply shocks and changes in labor market institutions. These events
happened a decade later in Germany than in the United States.
A central organizing framework of the voluminous recent literature studying changes in the returns to skills and the evolution of earnings inequality is what we refer to as the canonical model, which elegantly and powerfully operationalizes the supply and demand for skills by assuming two distinct skill groups that perform two different and imperfectly substitutable tasks or produce two imperfectly substitutable goods. Technology is assumed to take a factor-augmenting form, which, by complementing either high or low skill workers, can generate skill biased demand shifts. In this paper, we argue that despite its notable successes, the canonical model is largely silent on a number of central empirical developments of the last three decades, including: (1) significant declines in real wages of low skill workers, particularly low skill males; (2) non-monotone changes in wages at different parts of the earnings distribution during different decades; (3) broad-based increases in employment in high skill and low skill occupations relative to middle skilled occupations (i.e., job 'polarization'); (4) rapid diffusion of new technologies that directly substitute capital for labor in tasks previously performed by moderately-skilled workers; and (5) expanding offshoring opportunities, enabled by technology, which allow foreign labor to substitute for domestic workers in specific tasks. Motivated by these patterns, we argue that it is valuable to consider a richer framework for analyzing how recent changes in the earnings and employment distribution in the United States and other advanced economies are shaped by the interactions among worker skills, job tasks, evolving technologies, and shifting trading opportunities. We propose a tractable task-based model in which the assignment of skills to tasks is endogenous and technical change may involve the substitution of machines for certain tasks previously performed by labor. We further consider how the evolution of technology in th
This paper shows that the United Kingdom since 1975 has exhibited a pattern of job polarization with rises in employment shares in the highest- and lowest-wage occupations. This is not entirely consistent with the idea of skill-biased technical change as a hypothesis about the impact of technology on the labor market. We argue that the "routinization" hypothesis recently proposed by Autor, Levy, and Murnane (2003) is a better explanation of job polarization, though other factors may also be important. We show that job polarization can explain one-third of the rise in the log(50/10) wage differential and one-half of the rise in the log(90/50). Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.