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Explaining Job Polarization: The Role of Heterogeneity in Capital Intensity

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Abstract

We propose a new perspective that job polarization stems from the interaction of the decrease in the relative price of capital goods, the heterogeneity in capital intensity of job task production, and the complementarity of job tasks in final goods production. First, we construct a measure of occupation-level capital intensities and document that the tasks of middle-skill workers tend to be more capital intensive. Second, we build a task-based model with two goods sectors and three job tasks, where the job task production differs in capital intensity and how a worker’s skill is utilized. The model demonstrates that when there is technological progress in investment technology, employment shifts away from capital-intensive tasks, and the relative wages are driven down, implying that a decreasing price of capital goods predicts job polarization. A quantitative analysis suggests that the model can account for approximately one-half of the employment polarization and approximately one-half of the upper tail of the wage polarization in the U.S. between 1980 and 2010.

Suggested Citation

  • 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.
  • Handle: RePEc:sin:wpaper:17-a015
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    References listed on IDEAS

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    More about this item

    Keywords

    Job polarization; Task-based model; Capital intensity; Technological change;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • 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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