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Interindustry Wage Differentials, Technology Adoption, and Job Polarization

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  • Myungkyu Shim
  • Hee-Seung Yang
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    Abstract

    This paper explores the relationship between job polarization and interindustry wage differentials. Using the U.S. Census and EU KLEMS data, we find that the progress of job polarization between 1980 and 2009 was more evident in industries that initially paid a high wage premium to workers than in industries that did not. With a two-sector neoclassical growth model to highlight the key mechanism, we argue that this phenomenon can be explained as a dynamic response of firms to interindustry wage differentials: firms with a high wage premium seek alternative ways to cut production costs by replacing workers who perform routine tasks with Information, Communication, and Technology (ICT) capital. The replacement of routine workers with ICT capital has become more pronounced as the price of ICT capital has fallen over the past 30 years. As a result, firms that are constrained to pay a relatively high wage premium have experienced slower growth of employmentof routine workers than firms in low-wage industries, which led to heterogeneity in job polarization across industries.

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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2014/1814wageshimyang.pdf
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    Bibliographic Info

    Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 18-14.

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    Length: 60 pages
    Date of creation: Apr 2014
    Date of revision:
    Handle: RePEc:mos:moswps:2014-18

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    Related research

    Keywords: Job Polarization; Interindustry Wage Differentials; Two Sector Growth Model; Endogenous Technology Adoption;

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