The Dynamics of Labour Market Polarization in Chile: An Analysis of the Link Between Technical Change and Informality

In spite of the growing literature on polarization, relatively little is known about the individual-level patterns underlying the decline of routine occupations and its link with informal employment in a middle-income country context. To shed light on this, we examine the ows of formal and informal workers into and out of routine and non-routine occupations over the period 1980-2015 in Chile. Using rich longitudinal data from the Social Protection Survey of Chile, we first reconstruct individuals' occupational trajectories by classifying individuals into different states at a monthly frequency. We then use a series of multilevel competing risk event history models and a decomposition ow approach to study the ows underlying the decline of routine occupations over time. Our results suggest a process of displacement and occupational downgrading for routine manual workers: workers in routine manual formal employment become increasingly unemployed or use informality as a buffer against job loss, and workers in routine manual informal employment become unemployed or transit to non-routine manual informal occupations. By contrast, workers in routine cognitive occupations seem to be relatively more protected against job displacement and occupational downgrading. Lastly, we find that the decrease in the share of routine occupations in Chile is mostly due to a decrease in the in ow transition rate from unemployment as well as an increase in the out ow transition rates to unemployment and informality.