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Non-Technologists Agree: It’s the Technology

March 18, 2014

Two papers came out last year that examined important issues around jobs and wages. Both are in top journals. Both were written by first-rate researchers, none of whom specialize in studying the impact of technology. And both came to the same conclusion: that digital technologies were largely responsible for the phenomena they examined.

The first paper, by David Dorn and my MIT colleague David Autor,  is about how jobs and wages changed in America from 1980-2005. It was published last year in the American Economic Review and called “The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market,” which is an admirably informative title.

Equally admirable are the graphs the authors draw to illustrate their main findings. Here’s the one for jobs (the one for wages has a pretty similar shape). It gives the changes in employment share — which you can think of as changes in the the ‘market share’ of jobs — between 1980 and 2005. And it shows vividly that low-skill and high-skill jobs gained market share over that period, which those in the middle of the skill range lost.

Autor and Dorn are clear on what accounts for this shift:

The adoption of computers substitutes for… workers performing routine tasks—such as bookkeeping, clerical work, and repetitive production and monitoring activities—which are readily computerized because they follow precise, well-defined procedures. Importantly, occupations intensive in these tasks are most commonplace in the middle of the occupational skill and wage distribution.

and what doesn’t:

We evaluate numerous alternative explanations for the pronounced differences in wage and employment polarization… including deindustrialization, offshoring, … and growing low-skill immigration. None of these alternatives appears central to our findings.

The second paper concentrates on wages, and tries to determine what’s caused the red line in the graph below to decline so fast in recent years

This line documents the labor share of GDP in the US over the post-war period — the percentage of GDP that gets paid out in compensation (wages and benefits) to workers. As the graph above shows, US labor share has  been heading down sharply just as corporate profits have reached hew heights.

Is this because of globalization? Nope, because it’s been happening around the globe. As Loukas Karabarbounis and Brent Neiman write in “The Global Decline of the Labor Share” (out in the current issue of the Quarterly Journal of Economics):

We document, however, that the global labor share has significantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced firms to shift away from labor and toward capital.

The AER and QJE are the two top journals in the economics field, so this research is about as solid as it gets. In light of this and plenty of other work, it really is time to stop arguing about whether technology has been one of the tectonic forces reshaping work and the workforce in recent decades. The evidence is just too clear that it is, and that we see evidence of the second machine age everywhere, including in the statistics.

This post first appeared March 12 on my Business Impact of IT blog here.