8.2 Empirical Evidence; Firms, Polarisation and Displacement

Question 1

What does the wage inequality curve suggest? - what was Katz and Murphy’s estimation

Answer 1

Suggests that the wage premium should go down if relative supply of skilled workers increases

reminder: x axis is p = Ls/Lu
y axis is r = Ws/Wu

Estimation of graph:

ln (Ws/Wu) = B0 + B1t + B2ln(St/Ut)

B2 is negative - an increase in relative supply lowers relative wages

B1 is positive: demand shifting each year in favour of S

The model does not explicitly explain why B1 is positive, but tells us that the demand for S relative to U is increasing

Question 2

What has been the common trend in relative share of skilled workers

Answer 2

The log supply index has been increasing over past few decades

Question 3

How effective is the wage inequlaity model

Answer 3

• Assumes rate of technological progress constant - technology not directly measured; it is assumed

Estimated model does quite well in predicting the wage premium

This is consistent with the skill based technological change theory (also consistent with others though)

Question 4

What is evidence at the industry level

Answer 4

What is the source of increase in demand for skilled workers?

• Employment of non production workers increased in 70s, accelerated in 1980s
• Employment of production workers in manufacturing fell

Found most of this increase in demand was within the industry
- Skill upgrading is positively associated with investment in computers and research and development expenditure

Question 5

What ist he effect of technology on firms?

Answer 5

Direct measures of technology adoption at the firm level:

• Surveyed manufacturing plants asked about use of automation equipment such as computer automated design and numerically controlled machines.
• Firms use new technology employ larger fraction of workers in scientific, engineering, managerial and precision craft occupations

Correlation or causation - time series evidence suggest investing in new tech does not increase employment of high skill workers
- In contrast to findings on the effect of investment in IT technology

Question 6

What has been the effect of job polarisation?

Answer 6

Job polarisation - shows change in occupational shares:
- Middle have reduced shares - between 15 and 5%

• Low have mainly positive around 3% change, however UK and Finland negative share
• High paying have positive change, between 3 and 12%

Question 7

What is the effect of job displacement?

Answer 7

Automation does displace workers - even if aggregate effect is positive

But how long does it take dissolved workers to find another job - does it ahve a long term effect:

Jacobson et al investigated long term effect of job loss:

Large job lossses even after 5 years

• Graph at bottom of 8.4

Question 8

Which 3 ways is technological change modelled?

Answer 8

• Change in factor prices (computers cheaper)
• Factor augmentation (computers make skilled workers more produtive)
• Task replacement (computers replace workers who do routine tasks)

All tell similar story - technology increases output and benefits some workers, but harms others

Question 9

What are some policy issues?

Answer 9

• Education
• Worker mobility
• Income redistribution and compensation
• Universal basic income

Question 10

What should we expect looking forward

Answer 10

Range of tasks machines do will be vastly greater - need environmental control and machine learning

Doesnt mean end of work - principle of comparative advantage important here
- Creation of tasks; do not know what these tasks are

Keynes believed we can all work a few hours a week - but distribution of work may be very unequal - distribution may occur.