"Beyond Labor Market Polarization" (Job Market Paper)
It is well documented that routine-biased technical change ("RBTC") led to labor market polarization during 1980-2000. In particular, the employment and wages of non-routine occupations, which include low-wage manual and high-wage cognitive ones, increased relative to routine occupations. I document that during 2000-2016, wage polarization stopped in that the wages of non-routine manual occupations fell in relative and absolute terms. I study the end of wage polarization through the lens of a dynamic general equilibrium model with RBTC, human capital accumulation, and occupational mobility. I find that during 2000-2016, RBTC continued to take place, but human capital accumulation and occupational mobility changed. In particular, compared to workers in routine occupations, workers in non-routine manual occupations had lower initial human capital and accumulated less human capital whereas workers in cognitive occupations had more initial human capital and accumulated more human capital than before. During 1980-2000 the changes in the human capital accumulation of the occupations were similar to those during 2000-2016, but during the second period mobility across occupations fell, which magnified the differences in human capital accumulation and led to the end of wage polarization.
I estimate the effect of the increasing import competition from China on the intensity of tasks performed by workers (e.g. cognitive, routine) within U.S. manufacturing establishments between 2002 and 2017. I measure the changes in the intensity of these tasks by linking information on occupational employment from the Occupational Employment Statistics (OES) to the occupational characteristics published by the Occupational Information Network (O*NET). I find that this “China shock” led establishments to significantly decrease the intensity of cognitive and interpersonal tasks, and to increase the intensity of manual and routine tasks. The literature predicts that the U.S. offshores routine and manual tasks to China, but these estimations are consistent with U.S. establishments reallocating employment to become more similar to their Chinese competitors, characterized by technologies more intensive in low-skilled workers. I document that, contrary to the estimated short-run effects of the China shock, manufacturing establishments on average reallocate employment following a process of routine-biased technical change (“RBTC”): decreasing the intensity of manual and routine tasks performed by workers and increasing the intensity of cognitive and interpersonal tasks. RBTC was an important force of technical change during this period, so quantifying how much the increasing import competition from China slowed down RBTC, and what were the effects on the productivity of the manufacturing sector, are important questions for future research. Moreover, if RBTC increases the productivity of manufacturing establishments, the results have implications for the design of public policies, such as subsidizing existing establishments affected by this China Shock.
A growing literature has used the intensity of the tasks that workers perform to explain labor market outcomes. Despite significant changes in the workplace, this "task approach" is based on the questionable assumption that the intensity of tasks remains constant over time. I harmonize and compare over time the intensity of four broad task classes that workers perform -non-routine cognitive, non-routine manual, interpersonal, and routine- in the Dictionary of Occupation Title (DOT) and the Occupational Information Network (O*NET). I find the new fact that a sizeable part of wage changes is due to increases in the return and the intensity of cognitive tasks. I show that my new fact has important implications for three well-documented wage trends during the last decades. First, it caused wage polarization because the intensities of cognitive tasks increased in both high-wage and low-wage occupations. Second, it increased the college premium because college graduates tend to work in occupations that are relatively intensive in cognitive tasks. Third, it reduced the gender-wage gap because women again tend to work in occupations that are relatively intensive in cognitive tasks.