Interindustry Wage Differentials, Technology Adoption, and Job Polarization

Abstract

Based on observations that high-wage industries in 1980 experienced more evident job polarization between 1980 and 2009, we hypothesize that the persistent structure of interindustry wage differentials leads to heterogeneity in job polarization across industries; as the relative price of ICT capital declines, firms respond to exogenous wage differentials by replacing routine workers with capital. Our empirical analysis shows that, during the last three decades, the annualized growth rate of ICT capital per worker increased by 0.34 percent and that of routine employment decreased by 0.41 percent in the U.S. industries that paid 10 percent higher wages in 1980.

Keywords: Job Polarization, Interindustry Wage Differentials, Endogenous Technology Adoption

JEL Classification: E24, J24, J31, O33, O41