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Wage Shocks and the Technological Substitution of Low-Wage Jobs

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  • Daniel Aaronson

    (Federal Reserve Bank of Chicago)

  • Brian Phelan

    (DePaul University)

Abstract

We extend the task-based empirical framework used in the job polarization literature to analyze the susceptibility of low-wage employment to technological substitution. We find that increases in the cost of low-wage labor, 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 is 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 Phelan, 2016. "Wage Shocks and the Technological Substitution of Low-Wage Jobs," Upjohn Working Papers 17-266, W.E. Upjohn Institute for Employment Research.
    • Handle: RePEc:upj:weupjo:17-266
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    3. Grace Lordan, 2019. "People versus machines in the UK: Minimum wages, labor reallocation and automatable jobs," PLOS ONE, Public Library of Science, vol. 14(12), pages 1-16, December.
    4. Marianna Kudlyak & Murat Tasci & Didem Tuzemen, 2019. "Minimum Wage Increases and Vacancies," Working Papers 19-30R, Federal Reserve Bank of Cleveland, revised 21 Apr 2022.
    5. Orley C. Ashenfelter & Štěpán Jurajda, 2021. "Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald’s Restaurants," NBER Working Papers 28506, National Bureau of Economic Research, Inc.
    6. Pestel, Nico & Bonin, Holger & Isphording, Ingo E. & Gregory, Terry & Caliendo, Marco, 2020. "Auswirkungen des gesetzlichen Mindestlohns auf Beschäftigung und Arbeitslosigkeit," IZA Research Reports 95, Institute of Labor Economics (IZA).
    7. Marcel Steffen Eckardt, 2022. "Minimum wages in an automating economy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(1), pages 58-91, February.
    8. Mark C. Long, 2022. "Seattle's local minimum wage and earnings inequality," Economic Inquiry, Western Economic Association International, vol. 60(2), pages 528-542, April.
    9. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Across-Country Wage Compression in Multinationals," NBER Working Papers 26788, National Bureau of Economic Research, Inc.
    10. Arindrajit Dube & Attila Lindner, 2021. "City Limits: What Do Local-Area Minimum Wages Do?," Journal of Economic Perspectives, American Economic Association, vol. 35(1), pages 27-50, Winter.
    11. Jonas Hjort & Xuan Li & Heather Sarsons, 2020. "Random-Coefficients Logit Demand Estimation with Zero-Valued Market Shares," Working Papers 2020-15, Becker Friedman Institute for Research In Economics.
    12. Yuci Chen, 2019. "What Do Establishments Do When Wages Increase? Evidence from Minimum Wages in the United States," Working Papers 19-31, Center for Economic Studies, U.S. Census Bureau.
    13. Zheng Li & Fengshuo Liu & Shuai Mi, 2022. "Can an increase in the minimum wage standard force enterprises to innovate? Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3807-3819, December.
    14. La, Jung Joo, 2019. "Can a reduction in credit card processing fees offset the effect of a hike in the minimum wage?," MPRA Paper 97920, University Library of Munich, Germany.
    15. Jeffrey Clemens & Lisa B. Kahn & Jonathan Meer, 2021. "Dropouts Need Not Apply? The Minimum Wage and Skill Upgrading," Journal of Labor Economics, University of Chicago Press, vol. 39(S1), pages 107-149.
    16. Jeffrey Clemens & Lisa B. Kahn & Jonathan Meer, 2018. "The Minimum Wage, Fringe Benefits, and Worker Welfare," NBER Working Papers 24635, National Bureau of Economic Research, Inc.
    17. Downey, Mitch, 2021. "Partial automation and the technology-enabled deskilling of routine jobs," Labour Economics, Elsevier, vol. 69(C).
    18. Koch, Andreas & Kirchmann, Andrea & Reiner, Marcel & Scheu, Tobias & Zühlke, Anne & Bonin, Holger, 2020. "Verhaltensmuster von Betrieben und Beschäftigten im Kontext des gesetzlichen Mindestlohns," IZA Research Reports 97, Institute of Labor Economics (IZA).
    19. Gregory, Terry & Zierahn, Ulrich, 2022. "When the minimum wage really bites hard: The negative spillover effect on high-skilled workers," Journal of Public Economics, Elsevier, vol. 206(C).
    20. Weller, Jürgen, 2020. "Technological change and employment in Latin America: opportunities and challenges," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    21. Friedrich Martin, 2020. "Using Occupations to Evaluate the Employment Effects of the German Minimum Wage," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 240(2-3), pages 269-294, April.
    22. Fan, Haichao & Hu, Yichuan & Tang, Lixin, 2021. "Labor costs and the adoption of robots in China," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 608-631.

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    More about this item

    Keywords

    technological substitution; routine tasks; minimum wage;
    All these keywords.

    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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