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The Growth of Low Skill Service Jobs and the Polarization of the U.S. Labor Market

How Does Growth in the U.S. Service Sector Impact Labor Polarization?

Income Distribution, June 2011

In a recent study of U.S. employ­ment and wage polar­iza­tion between 1980 and 2005, David Autor and David Dorn uncover rapid growth of employ­ment and wages in ser­vice occu­pa­tions and inves­ti­gate how this phe­nom­e­non is related to the inter­ac­tion between con­sumer pref­er­ences and tech­no­log­i­cal progress.

Employment and real earn­ings of low skill occu­pa­tions have largely remained stag­nant or declined in the past 25 years.   However, devi­at­ing from this trend, both wages and hours worked among non-college work­ers in ser­vice occu­pa­tions note a con­sid­er­able increase.  Upon fur­ther inves­ti­ga­tion of the U.S. employ­ment and earn­ings dis­tri­b­u­tions between 1980 and 2005, ris­ing employ­ment and wages in ser­vice occu­pa­tions account for a sub­stan­tial share of aggre­gate polar­iza­tion and growth of the lower tail.  How can one explain the chang­ing face of low skill, low wage employ­ment?  The study hypoth­e­sizes that automa­tion of rou­tine tasks sub­sti­tutes for low skill work­ers in these posi­tions, and as the price of com­puter tech­nol­ogy has declined and dri­ven down the wage paid for rou­tine tasks, low skill work­ers have real­lo­cated their labor sup­ply to ser­vice occu­pa­tions, which are dif­fi­cult to auto­mate.  Given that con­sumer pref­er­ences do not allow close sub­sti­tutes for ser­vice out­puts such as restau­rant meals and house clean­ing, tech­no­log­i­cal sub­sti­tutes in non-service, low skill tasks poten­tially raises aggre­gate demand for ser­vice out­puts, thus induc­ing ris­ing employ­ment and wages in ser­vice occu­pa­tions.   Motivated by this frame­work, Autor and Dorn extend the model, and derive and test the fol­low­ing impli­ca­tions:  (1) greater adop­tion of infor­ma­tion tech­nol­ogy; (2) greater real­lo­ca­tion of low skill work­ers into ser­vice occu­pa­tions (employ­ment polar­iza­tion); (3) larger increases in both employ­ment and wages at both ends of the occu­pa­tional skill dis­tri­b­u­tion (wage polar­iza­tion); (4) and larger inflows of both high and low skill labor.