Income-Driven Labor-Market Polarization

Diego Comin, Ana Danieli (anadanieli2020@u.northwestern.edu) and Martí Mestieri

No WP-2020-22, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: We propose a mechanism for labor-market polarization based on the nonhomotheticity of demand that we call the income-driven channel. Our mechanism builds on a novel empirical fact: expenditure elasticities and production intensities in low- and high-skill occupations are positively correlated across sectors. Thus, as income grows, demand shifts towards expenditure-elastic sectors, and the relative demand for low- and high-skill occupations increases, causing labor-market polarization. A calibrated general-equilibrium model suggests this mechanism accounts for 90% and 35% of the increase in the wage-bill share of low- and high-skill occupations observed in the US during 1980-2016, and for 64% and 28% of the rise in the employment shares of low- and high-skill occupations. This mechanism is similarly important for the polarization of labor markets in Western Europe during 1980-2016, as well as in the US during earlier decades and, possibly, the near future.

Keywords: Labor-market polarization; Nonhomothetic Demand (search for similar items in EconPapers)
JEL-codes: E21 E23 J23 J31 (search for similar items in EconPapers)
Pages: 47
Date: 2020-10-23
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.chicagofed.org/~/media/publications/wo ... 20/wp2020-22-pdf.pdf full text (application/pdf)

Related works:
Working Paper: Income-Driven Labor Market Polarization (2020)
Working Paper: Income-Driven Labor-Market Polarization (2020)
Working Paper: Income-driven Labor Market Polarization (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:92692

Ordering information: This working paper can be ordered from
publications.chi@chi.frb.org

DOI: 10.21033/wp-2020-22

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese (lauren.wiese@chi.frb.org).