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Offshoring, computerization, labor market polarization and top income inequality

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  • Cavenaile, Laurent

Abstract

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.

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  • Cavenaile, Laurent, 2021. "Offshoring, computerization, labor market polarization and top income inequality," Journal of Macroeconomics, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:jmacro:v:69:y:2021:i:c:s0164070421000252
    DOI: 10.1016/j.jmacro.2021.103317
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    Cited by:

    1. Federico S. Mandelman & Andrei Zlate, 2022. "Offshoring, Automation, Low-Skilled Immigration, and Labor Market Polarization," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(1), pages 355-389, January.
    2. Usabiaga, Carlos & Núñez, Fernando & Arendt, Lukasz & Gałecka-Burdziak, Ewa & Pater, Robert, 2022. "Skill requirements and labour polarisation: An association analysis based on Polish online job offers," Economic Modelling, Elsevier, vol. 115(C).
    3. P. Michael KOSICEK & Ramesh SONI & David YERGER, 2023. "The Distribution of Relative Demand and Relative Supply Shocks for Managers Across the U.S. Economy," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 2, pages 5-13.
    4. Lili Yan Ing & Gene Grossman & David Christian, 2022. "Digital Transformation:‘Development for All’?," Chapters, in: Lili Yan Ing & Dani Rodrik (ed.), New Normal, New Technologies, New Financing, chapter 7, pages 75-88, Economic Research Institute for ASEAN and East Asia (ERIA).
    5. Jocelyn Maillard, 2021. "Automation, Offshoring and Employment Distribution in Western Europe," Working Papers halshs-03219118, HAL.

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    More about this item

    Keywords

    Polarization; Inequality; Offshoring; Computerization; Occupational choice;
    All these keywords.

    JEL classification:

    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • 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

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