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Wage Shocks and the Technological Substitution of Low‐wage Jobs

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  • Daniel Aaronson
  • Brian J Phelan

Abstract

We extend the task‐based empirical framework used in the job polarisation literature to analyse the susceptibility of low‐wage employment to technological substitution. We find that increases in the cost of low‐wage labour, via minimum wage hikes, lead to relative employment declines at cognitively routine occupations but not manually‐routine or non‐routine low‐wage occupations. This suggests that low‐wage routine cognitive tasks are susceptible to technological substitution. While the short‐run employment consequence of this reshuffling on individual workers appears to be economically small, due to concurrent employment growth in other low‐wage jobs, workers previously employed in cognitively routine jobs experience relative wage losses.

Suggested Citation

  • Daniel Aaronson & Brian J Phelan, 2019. "Wage Shocks and the Technological Substitution of Low‐wage Jobs," The Economic Journal, Royal Economic Society, vol. 129(617), pages 1-34.
    • Handle: RePEc:oup:econjl:v:129:y:2019:i:617:p:1-34.
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    File URL: http://hdl.handle.net/10.1111/ecoj.12529
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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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