Learning New Technology: the Polarization of the Wage Distribution

Manuel Hidalgo and Benedetto Molinari

No 15.01, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: This paper presents novel evidence regarding the relationship between technological progress, occupational tasks and wage inequality. By applying a counterfactual quantile regression analysis to historic U.S. data, we show that the evolution of wage inequality in the lower echelon of the wage distribution was due entirely to a reduction of within-group wage inequality, which was determined, in turn, by more homogeneous remuneration paid to workers performing routine tasks. Changes in the differential between the remuneration paid to technology-complementary and technology-substitute tasks had only a negligible impact on wage inequality among low-wage workers, which casts some doubt on the validity of basing a theory of wage inequality on routinization-biased technical change operating through a labor demand channel. To reconcile the routinization hypothesis with the data, we develop a model in which skill-heterogeneous workers face endogenous occupational choices and learning costs in connection with operating a new technology. Even in the absence of changes in wage differentials, the model argues that technical change can generate an empirically consistent non-monotone effect on wage inequality by affecting the average level of skills within different groups of workers.

Keywords: Residual Wage Inequality; Wage Polarization; Price and Composition Effects; Routinization hypothesis; Skill Biased Technical Change; Occupational Tasks; Job Polarization. (search for similar items in EconPapers)
JEL-codes: J24 J31 O33 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-01
New Economics Papers: this item is included in nep-lab, nep-lma and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Learning New Technology: The Polarization of the Wage Distribution (2015)
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