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

Working Paper
Published on 21 September 2017


Lee and Shin (2017) analyze the effect of technological change in a novel framework that integrates an economy's skill distribution with its occupational and industrial structure. Individuals become managers or workers 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 not only raises the employment shares and relative wages of lower- and higher-skill occupations among workers (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 of such sectors, whose employment and value-added shares shrink if sectoral goods are complementary (structural change). The authors present several novel facts that support their model, followed by a quantitative analysis showing that task-specific 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.


Sang Yoon (Tim) Lee

University of Mannheim

Yongseok Shin

Washington University in St. Louis