The Dynamics of Labor Market Polarization

58 Pages Posted: 4 Nov 2013

See all articles by Christopher L. Smith

Christopher L. Smith

Government of the United States of America, Board of Governors of the Federal Reserve System (FRB), Division of Research and Statistics, Macroeconomic Analysis Section

Date Written: August 29, 2013

Abstract

It has been well documented that the share of the working-age population employed in "middle-skill" occupations has been falling for some time, while the share in lower- and higher-skill jobs has been rising -- i.e. "polarization" of the labor market (e.g. Autor 2010). However, the dynamics and related mechanism behind these employment trends are not fully understood; nor is it well understood what happens to workers who are displaced from middle-skill jobs. In this paper, I use data from the matched monthly CPS, the March CPS supplement, and the Displaced Worker Survey to answer two primary questions. First, into what employment states or occupations do unemployed persons who were formerly employed in low-, middle-, or high-skill occupations transition? Second, how have transitions between job types and employment states changed over time, and how have these changes contributed to trends in employment shares by job-type? I find that the decline in the share of workers in middle-skill jobs is due both to a decline in inflows into these jobs (particularly from non-employment and for younger workers) and because of a rise in outflows from these jobs (to non-employment and to other jobs); the increase in the share of workers in lower-skill jobs appears due to an increase in worker transitions from other job types (evident within all demographic groups); and the increase in the share of workers in higher-skill jobs appears due to an increase in worker transitions from other job types and is also somewhat compositional in nature (because there are more college-educated workers).

Keywords: labor demand, labor market polarization, polarization, job transitions, occupational change

JEL Classification: J20, J21, J23, J24

Suggested Citation

Smith, Christopher L., The Dynamics of Labor Market Polarization (August 29, 2013). FEDS Working Paper No. 2013-57. Available at SSRN: https://ssrn.com/abstract=2348172 or http://dx.doi.org/10.2139/ssrn.2348172

Christopher L. Smith (Contact Author)

Government of the United States of America, Board of Governors of the Federal Reserve System (FRB), Division of Research and Statistics, Macroeconomic Analysis Section ( email )

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