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

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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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    Cited by:

    1. 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.
    2. 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.
    3. T.Huw Edwards & Carlo Perroni, 2014. "Market Integration, Wage Concentration, and the Cost and Volume of Traded Machines," Discussion Paper Series 2014_08, Department of Economics, Loughborough University, revised Sep 2014.
    4. Georg Graetz & Guy Michaels, 2018. "Robots at Work," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 753-768, December.
    5. 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.
    6. 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.
    7. Gersbach, Hans & Schmassmann, Samuel, 2019. "Skills, Tasks, and Complexity," IZA Discussion Papers 12770, Institute of Labor Economics (IZA).
    8. Böhm, Michael, 2014. "The Wage Effects of Job Polarization: Evidence from the Allocation of Talents," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100547, Verein für Socialpolitik / German Economic Association.
    9. Olexandr Yemelyanov & Anastasiya Symak & Tetyana Petrushka & Roman Lesyk & Lilia Lesyk, 2018. "Assessment of the Technological Changes Impact on the Sustainability of State Security System of Ukraine," Sustainability, MDPI, Open Access Journal, vol. 10(4), pages 1-24, April.
    10. 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.
    11. 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.

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    More about this item

    Keywords

    Automation; job polarization; technical change; wage inequality; training;
    All these keywords.

    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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