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

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  • Graetz, Georg
  • Feng, Andy

Abstract

Job polarization the rise in employment shares of high and low skill jobs at the expense of middle skill jobs occurred in the US not just recently, but also in the late nineteenth and early twentieth centuries. We argue that in each case polarization resulted from increased automation, and provide a theoretical explanation. In our model, firms deciding whether to employ machines or workers in a given task weigh the cost of using machines, which is increasing in the complexity (in an engineering sense) of the task, against the cost of employing workers, which is increasing in training time required by the task. Insights from artificial intelligence and robotics suggest that some tasks do not require training regardless of complexity, while in other tasks training is required and increases in complexity. In equilibrium, firms are more likely to automate a task that requires training, holding complexity constant. We assume that more-skilled workers learn faster, and thus it is middle skill workers who have a comparative advantage in tasks that are most likely to be automated when machine design costs fall. In addition to explaining job polarization, our model makes sense of observed patterns of automation and accounts for a set of novel stylized facts about occupational training requirements.

Suggested Citation

  • Graetz, Georg & Feng, Andy, 2014. "Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100401, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc14:100401
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    Cited by:

    1. T. Huw Edwards & Carlo Perroni, 2014. "Market Integration, Wage Concentration, and the Cost and Volume of Traded Machines," CESifo Working Paper Series 4997, CESifo.
    2. 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.
    3. 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.
    4. Gersbach, Hans & Schmassmann, Samuel, 2019. "Skills, Tasks, and Complexity," IZA Discussion Papers 12770, Institute of Labor Economics (IZA).
    5. 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.
    6. 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.
    7. Georg Graetz & Guy Michaels, 2018. "Robots at Work," The Review of Economics and Statistics, MIT Press, vol. 100(5), pages 753-768, December.
    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. 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.
    11. 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.

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    More about this item

    JEL classification:

    • 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
    • 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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