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Demand-Driven Labor-Market Polarization

Author

Listed:
  • Diego Comin

    (Dartmouth College)

  • Ana Danieli

    (Northwestern University)

  • Marti Mestieri

    (Northwestern University)

Abstract

We document that income elastic sectors are more intensive in high- and low-skill oc-cupations than income inelastic sectors, which are relatively more middle-skill intensive.As a result, increases in aggregate expenditure have an asymmetric effect on labor demandacross occupations and cause labor-market polarization. We quantify the importance of thisdemand-driven labor market polarization for the US using a general equilibrium modelwith endogenous job assignment and nonhomothetic demand. Our model is calibrated toaggregate variables from 1980 and household-level estimates of sectoral income elasticity.We find that the increase in aggregate expenditure from 1980 to 2016 accounts for 50% of theincrease in the wage bill share of high-skill occupations, 60% of the decline for medium-skilloccupations and virtually all of the increase in the wage bill share of low-skill occupations.This mechanism is also quantiatively important to understand the evolution of labor marketoutcomes across occupations in the period 1950-1980 and in other developed economies.

Suggested Citation

  • Diego Comin & Ana Danieli & Marti Mestieri, 2019. "Demand-Driven Labor-Market Polarization," 2019 Meeting Papers 1398, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1398
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    References listed on IDEAS

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    Cited by:

    1. Mestieri, Martí & Basco, Sergi & Smagghue, Gabriel & Liegey, Maxime, 2020. "The Heterogeneous Effects of Trade across Occupations: A Test of the Stolper-Samuelson Theorem," CEPR Discussion Papers 15186, C.E.P.R. Discussion Papers.
    2. Anderton, Robert & Jarvis, Valerie & Labhard, Vincent & Morgan, Julian & Petroulakis, Filippos & Vivian, Lara, 2020. "Virtually everywhere? Digitalisation and the euro area and EU economies," Occasional Paper Series 244, European Central Bank.
    3. Antonio Martins-Neto & Nanditha Mathew & Pierre Mohnen & Tania Treibich, 2021. "Is There Job Polarization in Developing Economies? A Review and Outlook," CESifo Working Paper Series 9444, CESifo.

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