The effect of job-polarizing skill demands on the US wage structure

Abstract

I present a quantitative model which accounts for changes in occupational wages, occupational employment shares, and the overall wage distribution. The model reproduces numerous aspects of US cross sectional data observed from 1979 to 2010, notably job and wage polarization. Decompositions reveal changes in production complementarities to be crucial but insufficient to replicate the observed occupational and wage changes. The distribution of worker skills, sorting, and the distribution of skill demands all play pivotal roles. The model indicates skill demands polarized over these three decades, shifting demand away from middle-skilled towards high and ‒ to a lesser extent ‒ low-skilled occupations. I find that industry trends, technological progress, and trade account for up to 57% of changes in skill demands. Information and communications technology spurred demand for jobs requiring interpersonal and social skills in the 1990s. This development appears far more pivotal than the automation of routine jobs concentrated in the manufacturing and construction sectors.