Interindustry Wage Differentials, Technology Adoption, and Job Polarization

Myungkyu Shim and Hee-Seung Yang ()

No 18-14, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: This paper explores the relationship between job polarization and interindustry wage differentials. Using the U.S. Census and EU KLEMS data, we find that the progress of job polarization between 1980 and 2009 was more evident in industries that initially paid a high wage premium to workers than in industries that did not. With a two-sector neoclassical growth model to highlight the key mechanism, we argue that this phenomenon can be explained as a dynamic response of firms to interindustry wage differentials: firms with a high wage premium seek alternative ways to cut production costs by replacing workers who perform routine tasks with Information, Communication, and Technology (ICT) capital. The replacement of routine workers with ICT capital has become more pronounced as the price of ICT capital has fallen over the past 30 years. As a result, firms that are constrained to pay a relatively high wage premium have experienced slower growth of employmentof routine workers than firms in low-wage industries, which led to heterogeneity in job polarization across industries.

Keywords: Job Polarization; Interindustry Wage Differentials; Two Sector Growth Model; Endogenous Technology Adoption (search for similar items in EconPapers)
JEL-codes: E24 J24 J31 O33 O41 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2014-04
New Economics Papers: this item is included in nep-knm, nep-lma and nep-mac
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Interindustry wage differentials, technology adoption, and job polarization (2018)
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