Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages

54 Pages Posted: 14 Feb 2015

Abstract

How do firms respond to technological advances that facilitate the automation of tasks? Which tasks will they automate, and what types of worker will be replaced as a result? We present a model that distinguishes between a task's engineering complexity and its training requirements. When two tasks are equally complex, firms will automate the task that requires more training and in which labor is hence more expensive. Under quite general conditions this leads to job polarization, a decline in middle wage jobs relative to both high and low wage jobs. Our theory explains recent and historical instances of job polarization as caused by labor-replacing technologies, such as computers, the electric motor, and the steam engine, respectively. The model makes novel predictions regarding occupational training requirements, which we find to be consistent with US data.

Keywords: automation, job polarization, technical change, wage inequality, training

JEL Classification: E25, J23, J31, M53, O33

Suggested Citation

Graetz, Georg, Rise of the Machines: The Effects of Labor-Saving Innovations on Jobs and Wages. IZA Discussion Paper No. 8836, Available at SSRN: https://ssrn.com/abstract=2564969

Georg Graetz

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

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