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The Polarization of the U.S. Labor Market MEASURING AND INTERPRETING TRENDS IN ECONOMIC INEQUALITY† The Polarization of the U.S. Labor Market By DAVID H. AUTOR,LAWRENCE F. KATZ, AND MELISSA S. KEARNEY* Much research (surveyed in Katz and Autor, We reconsider this revisionist view, focusing 1999) documents a substantial widening of the on a marked change in the evolution of the U.S. U.S. wage structure since the late 1970s, driven wage structure over the past 15 years and di- by increases in educational wage differentials vergent trends in upper- and lower-tail wage and residual wage inequality. The growth in inequality. We first document that wage in- wage inequality was most rapid during the equality in the top half of the distribution has 1980s, and involved a spreading out of the exhibited an unchecked secular rise for 25 entire wage distribution. Rapid secular growth years, but it has ceased growing since the late in the demand for skills, partly from skill-biased 1980s (and for some measures narrowed) in the technical change (SBTC), combined with a bottom half of the distribution. We next dem- slowdown in the growth of the relative supply onstrate that employment growth differed sharply of college workers helps explain these wage in the 1990s versus the 1980s, with more rapid changes. Eroding labor market institutions—the growth of employment in jobs at the bottom and minimum wage and unions—further contrib- top relative to the middle of the skill distribu- uted to rising wage inequality. tion. Borrowing terminology from Maarten Goos Recent work emphasizes a slowing of wage and Alan Manning (2003), we characterize this inequality growth over the last 15 years (David pattern as a “polarization” of the U.S. labor Card and John DiNardo, 2002; Thomas Le- market, with employment polarizing into high- mieux, forthcoming). This “revisionist” litera- wage and low-wage jobs at the expense of mid- ture views the 1980s surge in wage inequality as dle-skill jobs. We then show how a model of an “episodic” event caused by institutional computerization in which computers comple- forces and argues that “modest” inequality ment nonroutine cognitive tasks, substitute for growth in the 1990s is inconsistent with a key routine tasks, and have little impact on nonrou- role for SBTC. tine manual tasks, can rationalize this polariza- tion pattern. † Discussants: Eli Berman, University of California-San Diego; Amitabh Chandra, Dartmouth University; Lawrence I. Divergent Upper- and Lower-Tail Wage Katz, Harvard University. Inequality * Autor: Department of Economics, Massachusetts Insti- tute of Technology, 50 Memorial Drive, E52-371, Cam- Figure 1 displays the evolution of the 90-50 bridge, MA 02142 and NBER (e-mail: [email protected]); and 50-10 log-hourly wage differentials for all Katz: Department of Economics, Harvard University, Lit- workers (males and females) from 1973 to 2004 tauer Center, Cambridge, MA, 02138 and NBER (e-mail: using (hours-weighted) wage data from the Cur- [email protected]); Kearney: The Brookings Institution, 1775 Massachusetts Avenue, N.W., Washington, DC, rent Population Survey (CPS) May samples (for 20036 and NBER (e-mail: [email protected]). We 1973–1978) and Merged Outgoing Rotation are grateful to Daron Acemoglu, Eli Berman, Frank Levy, Group samples (for 1979–2004).1 It shows sub- and Sendhil Mullainathan for superb suggestions, and to Michael Anderson and Tal Gross for excellent research assistance. Autor acknowledges support from the National Science Foundation (CAREER SES-0239538) and the 1 Our sample selection and data processing steps for CPS Sloan Foundation. Katz acknowledges support from the wage data are the same as those described in the Data Mellon Foundation and the Radcliffe Institute for Advanced Appendix of Autor et al. (2005b), extended to cover wage Study. data for 2004. 189 190 AEA PAPERS AND PROCEEDINGS MAY 2006 FIGURE 1. MALE AND FEMALE LOG HOURLY 90/50 AND 50/10 EARNINGS RATIOS FIGURE 2. CHANGES IN MALE AND FEMALE LOG REAL HOURLY EARNINGS BY PERCENTILE, 1973–1988 Source: Current Population Survey May and Monthly AND 1988–2004 Files, 1973–2004. Source: See Figure 1. stantial increases in upper-half (90-50) and lower-half (50-10) wage inequality from 1979 2005a). Using tax-return data, Thomas Piketty to 1987, expanding the 90-10 wage differential and Emmanuel Saez (2003) further document by 21 log points. But the trends in upper-half the divergence of earnings in the very upper-end and lower-half inequality diverge after 1987, of distribution (the top 1 percent) relative to with upper-half wage inequality continuing to other workers since the 1970s. rise steadily while lower-half inequality growth We examine how a nuanced view of techno- ceased in the late 1980s (with a contraction in logical change may contribute to these trends. the 50-10 differential of four log points from Following Autor et al. (2003), our framework 1987 to 2004). Monotonic rising wage inequal- observes that the first-order impact of comput- ity in the 1980s and diverging upper- and lower- erization is to displace “middle skilled,” routine tail inequality since the late 1980s are observed cognitive and manual tasks, such as bookkeep- for males and females separately, for the weekly ing and repetitive production work. If routine wages of full-time workers, and for the CPS tasks are more complementary to high-skilled March samples (Autor et al., 2005a). abstract tasks than to “nonroutine manual” tasks Figure 2 illustrates where in the wage struc- (such as those of truck drivers), the computer- ture the divergence of upper- and lower-tail ization of routine work can generate labor mar- wage inequality trends have occurred. It plots ket polarization. The model predicts that wage cumulative log hourly real earnings growth (in- polarization should be accompanied by employ- dexed using the Personal Consumption Expen- ment polarization. ditures implicit price deflator) by wage percentile for 1973 to 1988 and for 1988 to II. Job Polarization Trends 2004. The figure shows an almost linear spread- ing out of the entire wage distribution for 1973 We examine trends in the “quality,” skill to 1988. In contrast, wage growth has polarized content, and task content of U.S. jobs since since 1988, with faster wage growth in the 1980. We follow Goos and Manning’s (2003) bottom quartile than in the middle two quartiles, analysis of the United Kingdom in exploring and with the most rapid rise and a continued how U.S. employment growth by occupation spreading out of the distribution in the top has been related to skill proxied by initial edu- quartile. cational levels or wages. The divergence of upper- and lower-tail wage We first sort (3-digit) occupations into per- inequality since the late 1980s holds for residual centiles by mean years of schooling in 1980, wage inequality and is robust to adjustments for using data from the 1980 Census Integrated labor force composition changes (Autor et al., Public Use Microsample (IPUMS). Figure 3 plots VOL. 96 NO. 2 MEASURING AND INTERPRETING TRENDS IN ECONOMIC INEQUALITY 191 We have tested the robustness of these pat- terns with an alternative skill definition—me- dian hourly wage in an occupation in 1980. This skill measure also indicates that employment growth was roughly monotonic in skill during the 1980s and then polarized in the 1990s. Da- ron Acemoglu (1999) reports similar U.S. job polarization from the mid-1980s to early 1990s using more aggregated industry-occupation cells, and Goos and Manning (2003) document job growth polarization for Britain, another country with a large increase in wage inequality. A third methodology for measuring employ- FIGURE 3. SMOOTHED CHANGES IN OCCUPATIONAL ment structure trends involves changes in em- EMPLOYMENT SHARES 1980–2000, WITH OCCUPATIONS ployment by job task content. Autor et al. RANKED BY THEIR 1980 AVERAGE YEARS OF SCHOOLING (2003) take this approach using data on task Source: Census Integrated Public Use Microsamples content from the Dictionary of Occupational 1980, 1990, and 2000. Titles aggregated to Census occupations. We extend their analysis of employment growth in industry-gender-education cells using CPS data employment growth, measured as the change in through 2002. We find that employment growth an occupation’s share of total hours worked, was most rapid in the 1990s for cells intensive from 1980 through 1990 and 1990 through in nonroutine cognitive tasks (those most com- 2000, against 1980 occupational skill (educa- plementary with computerization), was declin- tion) percentile using employment shares from ing at an increasing rate in the 1990s for cells the 1980 to 2000 IPUMS.2 For the 1980s, the intensive in routine cognitive and manual tasks figure shows declining employment at the bot- (those most substitutable for computers), and tom of the distribution, and near-monotonic (al- ceased declining in the 1990s for (typically low- most linear) increases in employment moving wage) jobs intensive in nonroutine manual tasks. up the education distribution. In contrast, em- These patterns of employment growth by ed- ployment growth in the 1990s polarized with ucation, wages, and task intensity suggest that the most rapid increases in high-skill jobs, slow- labor demand shifts have favored low- and est growth in middle-skill jobs, and modest high-wage workers relative to middle-wage growth in low-skill jobs. workers over the last 15 years. This contrasts This pattern of job growth (and possible labor with the labor demand shifts of the 1980s, demand shifts) corresponds well with the wage which appear to have been monotonically rising structure changes shown in Figure 2. In a com- in skill. parison of the 1980s to the 1990s, we find that employment growth is more rapid in the 1990s III. A Model and Interpretation below the fortieth and above the eightieth per- centiles of the occupational skill distribution Our framework, building on Autor et al.
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