This article is the first part out of four, which will be published in this blog. These fourth parts are preliminary versions of a work which will be included as a chapter of the book "Automation", which will be published by the European Liberal Forum at the end of the year.
At the end of the eighties the British film director, Peter Greenaway, wrote and directed his more successful film entitled “The Cook, the Thief, His Wife & Her Lover”. Greenaway narrates the intertwined stories of the four characters referred in the title of his film.
Along these lines, we also aim to tell the vicissitudes of four characters. Those four mentioned in the title. Three are of flesh and blood, the other the outcome of human ingenuity. As we shall see, the fate of the first three is closely linked to the evolution of the latter. Let us say you that the maid is the alter ego of low-skilled, low-wage workers, the clerk of middle-skill, middle-wage workers, and the doctor of high-skill, high-wage workers. The computer represents the role of the information and communication technologies (ICT), which have changed our lives in the last decades.
We must poke our nose into their lives for a relatively short period of time. Otherwise, we would risk going on too long. We think that the last twenty five years will be enough. Since the late eighties –actually, the time of the premiere of Greenaway’s film- until today. In addition, we wish to announce that it is not our intention to bore you with data. There are quite a lot of them. If you are interested in to take a look on them, the academic papers by Acemoglu and Autor (2011) and Van Reenen (2011) and the bibliographic references given along this storytelling can provide you a broad data array. Do not think that the experiences of our characters are constraint to a particular country. You can place their adventures in the United States or Europe. Even, if desired, in Australia or Canada. Their stories are very similar in any developed country. I will not say identical, but similar, at least broadly.
Perhaps every child comes with a loaf under his arm, but we do not even know if our first three characters must be grateful for their computer. The rise and development of the information and communications technologies has brought mixed fortunes for them. The doctor has taken advantage from them. The computer complements her work and makes her more productive. However, the computer does not seem to have done some good for the maid, while the clerk had to see how many of her tasks are now undertaken by the computer or were relocated to faraway places, which, thanks to the information and communications technologies, are not so much anymore.
The job opportunities of our three characters have changed differently from the end of the eighties. The job opportunities for the maid and the doctor have increased, while the clerk has been left with fewer job opportunities. This means that, in the past 25 years, the job distribution -just as the wage distribution- has undergone an ongoing process of polarization: both the share of employment in high-skill, high-wage occupations and low-skill, low-wage occupations increased. It must be pointed out that, in the nineties, relative employment growth was rapid in high-skill, high-wage occupations and modestly positive at low-skill, low-wage occupations, but it was heavily concentrated among the low-skill, low-wages occupations over the intervening years of this century. However, the behavior of employment was different during the eighties. In this decade, employment growth by occupation was nearly monotonic in occupational skill: occupations below the median skill declined as a share of employment and occupations above the median increased.
Figure 2: Changes in employment Europe and United States
Source: Acemoglu and Autor (2011).
Table 1: Changes in hours worked for occupations ranked by their mean 1993 European wage
|Source: Gooss, Maning and Salomons (2009)|
Table 2: Changes in hours worked for high-, middling- and low-paying occupations in 16 European countries
|Source: Goos, Maning and Salomons (2009)|
There is a strong empirical evidence that since the late 1970s and continuing through the mid-2000s, overall wage inequality has been increasing in the United States (see Autor et al. (2008) and Lemieux (2006)) and United Kingdom (Machin and Van Reenen (2008)).
In particular, wage inequality rose between the middle of the seventies and the end of the eighties. During this period, the wage structure changed monotonically: the upper percentiles of the wage distribution grew much more than the median and the lower percentiles grew less than the median (see Figure 3 and Table 3). That is to say, the doctor’s wage grew much more than the clerk’s wage, while the latter grew more than the maid’s wage.
However, the wage fate of the maid, the clerk and the doctor has been different in the last 25 years. In particular, in the United States, the maid’s wage grew more than the wage of the clerk and the doctor’s wage grew much more than the wages of the clerk and the maid. This means that, in the last 25 years, wage distribution undergone a process of polarization: the upper percentiles grew much more than the median and the lower percentiles grew more than the median (see Figure 3). In the United Kingdom, wage polarization also happened, but more slightly (see Table 3). Green and Sand (2015) report that, in Canada from 1971 to 2005, the wage pattern reflects a simple increase in inequality with greater growth in high paid than middle paid occupations and greater growth in middle than low paid occupations. Since 2005, they report that there has been some wage polarization but this is present only in some parts of the country and seems to be related more to the resource boom than technological change (see Figure 4).
Figure 3: Changes in wages in the United States
Figure 4: Changes of real wages in Canada
|Source: Green and Sands (2015)|
Table 3: Wage evolution in UK
|Solurce: Machin and Van Reenen (2007)|
Figure 5: Wage growth in Germany
|Dustman et al. (2009)|
The Continental European countries did have a larger increase in unemployment which may be due to the same underlying forces that have pushed up wage inequality in Britain and America. Differences in institutions or in tastes and social norms might explain different cross-country patterns of change. In particular, the differences between Continental European countries and the United States and United Kingdom. The basic idea is that, in more flexible labor markets, technological shocks result in an adjustment through prices, while, in more rigid labor markets, adjustment is made through quantities. Therefore, in Continental European Countries, the maid and the clerk have not seen to increase their wage difference relative to the doctor, but at the expense of a higher risk of unemployment (see Figure 6, which compares evolution of unemployment in France and the United States).
Figure 6: Unemployment in France and United States
In the next installment, the reasons for the contrasting fortunes of our characters will be addressed.
Acemoglu, D., & Autor, D. H. (2011). Skills, tasks and technologies: Implications for employment and earnings. Handbook of Labor Economics, 4, 1043-1171.
Antonczyk, D., DeLeire, T., & Fitzenberger, B. (2010). Polarization and rising wage inequality: comparing the US and Germany. ZEW-Centre for European Economic Research Discussion Paper, (10-015).
Autor, D. H., & Dorn, D. (2010). Inequality and specialization: the growth of low-skill service jobs in the United States. MIT Working Paper.
Autor, D., Katz, L., and Kearney, M. (2008). Trends in U.S. Wage Inequality: Re-Assessing the Revisionists. Review of Economics and Statistics, 90(2):300–323.
Dustmann, C., Ludsteck, J., and Sch¨onberg, U. (2009). ”Revisiting the German Wage Structure”. The Quarterly Journal of Economics, 124(2), 843–881.
Goos, M., Manning, A., & Salomons, A. (2009). Job Polarization in Europe. The American Economic Review, Papers and Proceedings, 99(2), 58-63
Goos, M., Manning, A., & Salomons, A. (2010). Explaining job polarization in Europe: the roles of technology, globalization and institutions. CEP Discussion Paper Nº 1026, LSE.
Green D. A. and B. M. Sand (2015). Has the Canadian Labor Market Polarized?. Canadian Journal of Economics, 48(2), 612-646.
Van Reenen, J. (2011). Wage inequality, technology and trade: 21st century evidence. Labour Economics, 18(6), 730-741.