This post is the third in a short series that assesses the role of technological change and job polarization in wage inequality trends.
The discussion of job polarization—the expansion of high and low-wage occupations while middle-wage occupations decline—and its role in driving wage inequality would benefit from a longer examination of occupational change and technology’s impact.
“Occupational upgrading” has been going on for 60 years or more. By occupational upgrading, we mean the erosion of employment in blue-collar and, more recently, pink-collar (administrative/clerical) occupations and the corresponding employment expansion of high wage, professional and managerial white-collar occupations. The share of employment in low-wage, service occupations (food preparation, janitorial/cleaning services, personal care and services) has actually been relatively stable for many decades and remained a small—roughly 15 percent—share of total employment.
The bottom line for the discussion of the role that technologically-driven occupation trends have played in generating wage inequality is that occupational upgrading has been occurring for decades, through periods of both rising and falling wage inequality and through both rising and falling median real wage growth. In our view, this makes occupational employment shifts a poor candidate for explaining the rise in wage inequality since 1979.
In our forthcoming paper, John Schmitt, Heidi Shierholz and I document these employment trends using data over the 1959 to 2007 period drawn from a Daron Acemoglu and David Autor (2011) paper and supplemented by our analysis of Current Population Survey data from 1979 onwards. These data are based on occupation shares of total employment but the trends are the same if one examines shares of total hours worked.
Figure 1 shows the declining share of middle-wage occupations (production, craft and repair; operators, fabricators and laborers; sales; office and administrative) since 1959, based on Acemoglu and Autor’s analysis of decennial census data. A similar trend is apparent in the CPS data from 1979, with the middle-wage occupations ‘share of total employment declining at roughly the same pace in the 1980s, 1990s and 2000s, with the decline in the 1980s a bit faster.
Figure 2 shows the trends for high-wage occupations’ and low-wage occupations’ share of total employment. As noted in a previous blog post, the employment share in low-wage (i.e., service) occupations was stable and remained at a low level—roughly 15 percent of total employment—over the last few decades. The trends in the 2000s differ in the CPS and the Acemoglu and Autor data because changes in occupational coding in 2003 artificially inflated their estimates of service occupation employment growth while we adjusted for that inconsistency. Taken together, the data in Figure 2 indicate that technological change and globalization did not materially affect the relative importance of service occupations in the economy between 1959 and 1999, though these occupations did expand modestly in the 2000s.
Meanwhile, the same figure shows that high-wage occupations (professional, managerial, and technical) have been expanding since 1959, though that expansion was faster in the 1980s and 1990s than it was from 1959 to 1979; the expansion, however, has slowed considerably in the 2000s.
These data allows us to characterize ways in which technology has affected the labor market (shaping the occupational employment structure) and ways it has not affected the labor market (causing wage inequality). Let me explain. We have documented a longstanding trend of occupational upgrading—more white-collar and less blue- and pink- collar work—for many decades. These technology-driven changes in the occupation structure have increased the skills and education employers seek in the labor market which, in turn, necessitates an educational upgrading of the workforce. This is what Claudia Goldin and Lawrence Katz refer to as the “race between technology and skills.” We believe there has been such a race, technology has had a major effect and that the education and skills have greatly improved and satisfied that increased demand. There has been an increase in so-called “skill premiums,” such as the college wage premium. We view that increase as reflecting other factors such as deregulation of industries, globalization, an eroded minimum wage, excessive unemployment and declining unionization rather than the product of technologically-driven skill shortages. We should note that the college premium has barely grown since 1995 and wages have been flat for 10 years for a majority of college graduates. Technology has had a large impact on the labor market but it has not generated wage inequality. We have faced a “wage deficit” rather than a “skills deficit,” meaning that jobs at every education and skill level have not seen appropriate wage growth. This is evident in the failure of wages of both high school and college-educated workers to keep pace with productivity, and in the extraordinary share of profits in the economy, especially in the 2000s.