Full Citation
Title: Income-Driven Labor-Market Polarization
Citation Type: Working Paper
Publication Year: 2020
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ISSN:
DOI: 10.3386/w27455
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Abstract: We propose a mechanism for labor-market polarization based on the nonhomotheticity of demand that we call the income-driven channel. Our mechanism builds on a novel empirical fact: expenditure elasticities and production intensities in low- and high-skill occupations are positively correlated across sectors. Thus, as income grows, demand shifts towards expenditureelastic sectors, and the relative demand for low- and high-skill occupations increases, causing labor-market polarization. A calibrated general-equilibrium model suggests this mechanism accounts for 90% and 35% of the increase in the wage-bill share of low- and high-skill occupations observed in the US during 1980-2016, and for 64%and 28% of the rise in the employment shares of low- and high-skill occupations. This mechanism is similarly important for the polarization of labor markets in Western Europe during 1980-2016, as well as in the US during earlier decades and, possibly, the near future.
Url: https://www.nber.org/papers/w27455
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Authors: Comin, Diego A.; Danieli, Ana; Mestieri, MartÃ
Series Title: NBER Working Paper Series
Publication Number: 27455
Institution: National Bureau of Economic Research
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Publisher Location:
Data Collections: IPUMS USA
Topics: Labor Force and Occupational Structure
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