Interindustry Wage Differentials, Technology Adoption, and Job Polarization
AbstractThis 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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Bibliographic InfoPaper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 18-14.
Length: 60 pages
Date of creation: Apr 2014
Date of revision:
Contact details of provider:
Postal: Department of Economics, Monash University, Victoria 3800, Australia
Web page: http://www.buseco.monash.edu.au/eco/
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Find related papers by JEL classification:
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- 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, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-18 (All new papers)
- NEP-KNM-2014-04-18 (Knowledge Management & Knowledge Economy)
- NEP-LMA-2014-04-18 (Labor Markets - Supply, Demand, & Wages)
- NEP-MAC-2014-04-18 (Macroeconomics)
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