Occupational polarisation and endogenous task-biased technical change

Since the 90s many developed countries have experienced job polarisation, whereby employment shifts away from middle-paying jobs and towards both higher-paid and lower-paid ones. The most popular explanation is that technological changes have been biased against routine tasks. This paper offers a complementary explanation that emphasises the increase in skill supply and the resulting adoption of technology. I exploit the large policy-driven expansion of higher education in the UK and argue that this supply-side shift has caused the adoption of routine-biased technology and thereby employment polarisation. This framework is supported by three facts observed in the UK. First, employment has shifted from the middle to the top, with not much change at the bottom of the occupation distribution. Second, there were relatively little movements in occupational wages and the pattern is not U-shaped. Third, over a period of rapidly increasing supply of graduates, occupational outcomes among graduates have been broadly stable. I build an equilibrium multi-sector model of occupational labor and fit it to UK data over 1997-2015. I find that in most industries, technical change over the period was biased against routine tasks and favoured managerial and professional tasks. Allowing endogenous technological change, the shift in skills supply alone can account for between a third and two thirds of the actual decline in routine manual occupations.