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Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages

Author

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  • Andy Feng
  • Georg Graetz

Abstract

How do firms respond to technological advances that facilitate the automation of tasks? Which tasks will they automate, and what types of worker will be replaced as a result? We present a model that distinguishes between a task's engineering complexity and its training requirements. When two tasks are equally complex, firms will automate the task that requires more training and in which labor is hence more expensive. Under quite general conditions this leads to job polarization, a decline in middle wage jobs relative to both high and low wage jobs. Our theory explains recent and historical instances of job polarization as caused by labor-replacing technologies, such as computers, the electric motor, and the steam engine, respectively. The model makes novel predictions regarding occupational training requirements, which we find to be consistent with US data.

Suggested Citation

  • Andy Feng & Georg Graetz, 2015. "Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages," CEP Discussion Papers dp1330, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1330
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    References listed on IDEAS

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    1. Guy Michaels & Ashwini Natraj & John Van Reenen, 2010. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over 25 years," NBER Working Papers 16138, National Bureau of Economic Research, Inc.
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    5. Frey, Carl Benedikt & Osborne, Michael A., 2017. "The future of employment: How susceptible are jobs to computerisation?," Technological Forecasting and Social Change, Elsevier, vol. 114(C), pages 254-280.
    6. Guido Matias Cortes, 2016. "Where Have the Middle-Wage Workers Gone? A Study of Polarization Using Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 34(1), pages 63-105.
    7. Arnaud Costinot & Jonathan Vogel, 2010. "Matching and Inequality in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 747-786, August.
    8. Michael Elsby & Bart Hobijn & Ayseful Sahin, 2013. "The Decline of the U.S. Labor Share," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(2 (Fall)), pages 1-63.
    9. Gray, Rowena, 2013. "Taking technology to task: The skill content of technological change in early twentieth century United States," Explorations in Economic History, Elsevier, vol. 50(3), pages 351-367.
    10. Atack, Jeremy & Bateman, Fred & Weiss, Thomas, 1980. "The Regional Diffusion and Adoption of the Steam Engine in American Manufacturing," The Journal of Economic History, Cambridge University Press, vol. 40(02), pages 281-308, June.
    11. Guy Michaels & Ashwini Natraj & John Van Reenen, 2014. "Has ICT Polarized Skill Demand? Evidence from Eleven Countries over Twenty-Five Years," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 60-77, March.
    12. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-1165, December.
    13. Francisco Rodriguez & Arjun Jayadev, 2010. "The Declining Labor Share of Income," Human Development Research Papers (2009 to present) HDRP-2010-36, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
    14. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October.
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    Citations

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    Cited by:

    1. Edwards, T. Huw & Perroni, Carlo, 2014. "Market Integration, Wage Concentration, and the Cost and Volume of Traded Machines," CAGE Online Working Paper Series 203, Competitive Advantage in the Global Economy (CAGE).
    2. repec:ucp:jhucap:doi:10.1086/697242 is not listed on IDEAS
    3. Tschirley, David & Reardon, Thomas, 2016. "Impact on Employment and Migration of Structural and Rural Transformation," Food Security International Development Working Papers 245895, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    4. Zsófia L. Bárány & Christian Siegel, 2018. "Job Polarization and Structural Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 57-89, January.
    5. Georg Graetz & Guy Michaels, 2018. "Robots at Work," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 753-768, December.
    6. Böhm, Michael, 2014. "The Wage Effects of Job Polarization: Evidence from the Allocation of Talents," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100547, Verein für Socialpolitik / German Economic Association.
    7. repec:gam:jsusta:v:10:y:2018:i:4:p:1186-:d:141119 is not listed on IDEAS
    8. Zsófia L. Bárány & Christian Siegel, 2018. "Job Polarization and Structural Change," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(1), pages 57-89, January.
    9. Wan-Jung Cheng, 2017. "Explaining Job Polarization: The Role of Heterogeneity in Capital Intensity," IEAS Working Paper : academic research 17-A015, Institute of Economics, Academia Sinica, Taipei, Taiwan, revised Feb 2018.
    10. Daron Acemoglu & Pascual Restrepo, 2018. "Low-Skill and High-Skill Automation," Journal of Human Capital, University of Chicago Press, vol. 12(2), pages 204-232.
    11. Gustavsson, Magnus, 2017. "Is Job Polarization a Recent Phenomenon? Evidence from Sweden, 1950–2013, and a Comparison to the United States," Working Paper Series 2017:14, Uppsala University, Department of Economics.

    More about this item

    Keywords

    Automation; job polarization; technical change; wage inequality; training;

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training
    • 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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