Job Polarization and Task‐Biased Technological Change: Evidence from Sweden, 1975–2005

• Author: Magnus Gustavsson,Adrian Adermon
• Date: 01 July 2015
• Published date: 01 July 2015
• DOI: http://doi.org/10.1111/sjoe.12109

Scand. J. of Economics 117(3), 878–917, 2015

DOI: 10.1111/sjoe.12109

Job Polarization and Task-Biased

Technological Change: Evidence

from Sweden, 1975–2005∗

Adrian Adermon

Uppsala University, SE-75120 Uppsala, Sweden

adrian.adermon@nek.uu.se

Magnus Gustavsson

Uppsala University, SE-75120 Uppsala, Sweden

magnus.gustavsson@nek.uu.se

Abstract

In this paper, we show that between 1975 and 2005, Sweden exhibited a pattern of job

polarization with expansions of the highest- and lowest-paid jobs compared to middle-wage

jobs. The most popular explanation for such a pattern is the hypothesis of task-biased

technological change, where technological progress reduces the demand for routine middle-

wage jobs but increases the demand for non-routine jobs located at the tails of the job–

wage distribution. However, our estimates do not suppor t this explanation for the 1970s

and 1980s. Stronger evidence for task-biased technological change, albeit not conclusive, is

found for the 1990s and 2000s. In particular, there is both a statistically and economically

significant growth of non-routine jobs and a decline of routine jobs. However, results for

wages are mixed; while task-biased technological change cannot explain changes in between-

occupation wage differentials, it does have considerable explanatory power for changes in

within-occupation wage differentials.

Keywords: Inequality; job mobility; skill demand; skill-biased technological change

JEL classification:E24; J21; J23; J62; O33

I. Introduction

Among economists, technological progress is commonly believed to in-

crease labor demand for more-skilled workers relative to less-skilled work-

ers. A major reason for this is the apparent fit between such skill-biased

technological change (SBTC) and the historical upward pressure on the

∗We are grateful to Per-Anders Edin, Maarten Goos, Nils Gottfries, Mikael Lindahl, Martin

Nybom, to three anonymous referees, and to seminar participants at Uppsala University,

the 2010 UCLS workshop, and the 2011 National Conference of Swedish Economists for

useful comments. We wish to thank Maarten Goos, Alan Manning, and Anna Salomons for

providing some of the data used in this paper. Magnus Gustavsson acknowledges f inancial

support from the Swedish Council for Working Life and Social Research.

CThe editors of The Scandinavian Journal of Economics 2015.

A. Adermon and M. Gustavsson 879

returns to worker skills (for overviews, see Katz and Autor, 1999; Ace-

moglu and Autor, 2011). However, less recognized is the fact that SBTC

also has straightforward and important implications for the composition

of jobs in an economy. In the typical textbook model, technology-induced

shifts in labor demand, which push the returns to skills above its long-run

equilibrium, will make it increasingly attractive for individuals to acquire

skills – along the lines of standard human capital theory – and thus also

produce a continuous increase in the supply of skills (e.g., Atkinson, 2008).

Because there are increases in both the demand and supply of skills, on-

going SBTC predicts monotonic growth in the number of more-skilled to

less-skilled jobs.

Recently, however, US, UK, and German studies have documented a

rising share of not only the highest-paid jobs but also of the lowest-paid

jobs (e.g., Goos and Manning, 2007; Autor et al., 2008; Dustmann et al.,

2009; Autor and Dorn, 2013). Assuming that wages can be thought of as

a single index of worker skills, this pattern is inconsistent with the impli-

cations of SBTC, where higher-paid jobs should simply increase relative

to lower-paid jobs. Instead, as first demonstrated by Goos and Manning

(2007), this pattern of job polarization – the disproportionate growth of

both the lowest- and highest-paid jobs – is potentially more consistent with

the more nuanced version of technological change of Autor et al. (2003,

hereafter ALM), which stresses the substitutability between routine tasks

and technology and the notion of task-biased technological change (TBTC).

In their set-up, ALM make an important distinction between labor per-

forming routine and non-routine tasks and argue that the falling price of

computer power should yield a drop in the relative demand for labor per-

forming routine tasks (e.g., bookkeepers, repetitive production work). This

follows from the observation that computer-driven technology can primarily

replace human labor in routine tasks – tasks that can be expressed by rules

or step-by-step procedures – but not (as yet) in non-routine jobs. Goos and

Manning (2007), in turn, highlight that this fits well with job polarization

because routine tasks are most common in middle-wage jobs. Top-paying

jobs, however, consist of tasks that require non-routine cognitive skills (e.g.,

engineers, economists), which should be complementary to computers. The

bottom of the wage distribution consists of jobs with a high degree of non-

routine manual tasks (e.g., cleaners, waiters, janitors), which, according to

ALM, should be neither complements nor substitutes to computers. ALM’s

hypothesis, combined with the observed job polarization, thus implies a

rise in the demand for low-wage workers relative to middle-wage workers

and thereby – compared to traditional SBTC – offers a more nuanced view

of how technology, and computers in par ticular, affects the demand for

labor of different skills. In line with this, Firpo et al. (2011) also conclude

CThe editors of The Scandinavian Journal of Economics 2015.

880 Job polarization and task-biased technological change

that changes in both between- and within-occupation wage differentials in

the US during the 1990s are in line with predictions from TBTC.

In light of these previous studies, the purpose of this paper is twofold.

First, we aim to thoroughly document the wage profile of net job creation

in Sweden between 1975 and 2005. Second, we wish to investigate whether

the observed job patterns are linked to the extent of routine versus non-

routine tasks across the job distribution along the lines predicted by the

TBTC hypothesis of ALM and Goos and Manning (2007). In doing so,

we provide three innovations to the empirical literature on TBTC. First,

we use a bootstrap procedure to test whether the observed pattern of net

job creation is statistically significant. Tests of statistical significance are

generally not carried out in previous studies, and our results show that

such tests can affect conclusions. Second, we invoke longitudinal data to

investigate whether individual mobility across routine and non-routine jobs

is along the lines expected from TBTC. Third, we apply the newly devel-

oped wage model of Firpo et al. (2011) to test whether individuals’ wage

changes are in accord with TBTC, and for the first time in the literature,

base this test on longitudinal data. While Firpo et al. (2011) use cross-

sectional data for the US, together with Acemoglu and Autor (2011), they

recognize that longitudinal data are more likely to overcome econometric

problems associated with workers’ job mobility and self-selection into job

tasks.

Because most of the previous research on job polarization pertains to

the US and UK, Sweden is a particularly interesting country to study

because in many regards it lies at the opposite end of the institutional

spectrum. In particular, Sweden has one of the world’s most compressed

wage structures, strong and influential unions, high levels of employment

protection, and generous unemployment benefits combined with a well-

developed welfare system (e.g., Cahuc and Zylberberg, 2004; Bj¨

orklund

and Freeman, 2010). Several studies have suggested that this could yield

a different pattern of net job creation. Acemoglu (2001) shows, within

a matching framework of the labor market, that generous unemployment

benefits and high minimum wages – as can be found in Sweden – induce

incentives that should shift the composition of employment towards high-

wage jobs. Moreover, Acemoglu (2003) suggests a model in which union-

imposed wage compression encourages the adoption of technologies that

increase the productivity of less-skilled workers and thus induces positive

effects on labor demand for these groups. Acemoglu and Autor (2011)

also discuss the possibility that powerful unions could restrict or delay the

substitution of machines for tasks performed by labor. Hence, even though

Sweden certainly could access the same technology as the US and UK,

the marked differences in institutional preconditions need not imply job

polarization in Sweden, even if TBTC is true for the US and UK.

CThe editors of The Scandinavian Journal of Economics 2015.