Horizontal and Vertical Polarization: Task-Speci c Technological Change in a Multi-Sector Economy

Thursday, 12 January, 2017
Abstract: 
Yoon Lee and Shin (2017) analyze the e ffect of technological change on inequality using a novel framework that integrates an economy's skill distribution with its occupational and industrial structure. Individuals become a manager or a worker based on their managerial vs. worker skills, and workers further sort into a continuum of tasks (occupations) ranked by skill content. Their theory dictates that faster technological progress for middle-skill tasks raises the employment shares and relative wages of lower- and higher-skill occupations (horizontal polarization), but also raises those of managers over workers as a whole (vertical polarization). Both dimensions of polarization are faster within sectors that depend more on middle-skill tasks and less on managers. This endogenously leads to faster TFP growth among such sectors, whose employment and value-added shares shrink if sectoral goods are complementarity to each other (structural change). In the limiting growth path, middle-skill occupations vanish but all sectors coexist. The authors present several novel facts that support their model, followed by a quantitative analysis that shows that task-specifi c technological progress - which was fastest for occupations embodying routine-manual tasks but not interpersonal skills - is important for understanding changes in the sectoral, occupational, and organizational structure of the U.S. economy since 1980. In contrast, skill-biased and/or sector-specifi c technological change played only a minor role.