The Labor Market Incidence of New Technologies

Tianyu Fan

Papers from arXiv.org

Abstract: This paper develops a new framework to analyze the incidence of labor market shocks, focusing on automation and artificial intelligence. Central to our theory is the distance-dependent elasticity of substitution (DIDES), where worker mobility between occupations declines with their distance in skill space. Mapping 306 occupations into cognitive, manual, and interpersonal skill dimensions, we estimate a low-dimensional latent skill model that preserves granular substitution patterns. We show that both automation and artificial intelligence cluster within skill-adjacent occupations, constraining employment adjustment and amplifying wage effects. The clustering nature of technologies generates unequal outcomes: 20--50% of labor demand shocks translate to wages (versus 30% under standard models), while mobility recovers only 20\% of losses (versus 30% from standard estimates).

Date: 2025-04, Revised 2025-11
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