TECHNOLOGICAL CHANGE AND THE WAGE DISTRIBUTION

- THE STRANGE CASE OF SWEDEN

Presentation at ELF workshop, 10 November, 2015

Jesper Roine, SITE, Handelshögskolan i Stockholm

MOTIVATING OBSERVATION: THE LONG RUN DISTRIBUTION OF INCOME

• Large changes in the income distribution over past 20-30 years (in Sweden and elsewhere)

• Question: To what extent can this be explained by technological change?

OVERALL BASIC QUESTION: HOW DOES TECHNOLOGICAL CHANGE ALTER THE DISTRIBUTION OF INCOME?

• Y = f(K,L,A), A – by definition more Y (given K and L), – but depending on how, the relative returns to the

process may change

• Technology can replace individuals (”automation”)

• Technology can complement individuals (capital-skill complementarities)

• Technology may alter balance between K and L

TWO RELATED STRANDS OF EXPLANATIONS

• Skill biased technological change (SBTC)• Tinbergen (1974), Goldin and Katz (2008), ”Race

between Technology and Education”

• Routine (or ”Task”) biased technological change (RBTC, TBTC)

• Autor, David, F. Levy and R. Murnane (2003), Acemoglu and Autor (2013)

SBTC – THE TEXTBOOK VERSION

THE EFFECTS OF TECHNOLOGY AND AUTOMATION ON THE WAGE DISTRIBUTION

David Autor in Science 2014:

I begin by documenting the centrality of the rising skill premium to the overall growth of earnings inequality. I then demonstrate the substantial explanatory power of a simple framework that embeds both the demand and supply for skills in interpreting the evolution of the inequality over five decades.

SOME EMPIRICAL FACTS

• Inreased income dispertion in most places (more in some than others)

• In the US, increased returns to education, higher wages for more skilled and workers with more abstract tasks

• Job-polarization ”everywhere”, loss of ”middle-paying jobs” (most prone to being automated)

Fig. 6 Change in real wage levels of full-time workers by education, 1963–2012.(A) Male workers, (B) female workers.

David H. Autor Science 2014;344:843-851

Fig. 4 Present discounted value of college relative to high school degree net of tuition, 1965–2008.Reproduced from Avery and Turner with permission of the American Economic

Association (39).

David H. Autor Science 2014;344:843-851

OECD-WIDE JOB POLARIZATION

Adapted from Goose, Manning, Salomonsen, AER 2014.

MORE DETAILED PICTURE FOR SWEDEN

From Adermon och Gustavsson, 2015

CHANGES IN US WAGES ACROSS SKILL LEVELS (RANKED BY 1979 WAGE LEVEL)

SUMMARY OF EXPLAINING THE US WAGE DISTRIBUTION

• Plausible that much of the US case can be explained by increased demand for skills, higher returns to education, and task biased technological change.

• In Sweden and elsewhere we observe similar patterns of technological change and job polarization

• We also see increasing income dispersion

• But what about earnings?

SWEDISH WAGE INCREASES BY EDUCATION, 2003-2013

CHANGE IN SWEDISH WAGES ACROSS ”SKILL LEVELS” (RANKED BY 1996 WAGE LEVEL)

CHANGES IN WAGES ACROSS DIFFERENT LEVELS OF ABSTRACT, ROUTINE AND SERVICE CONTENT OF THE OCCUPATION GROUP

SWEDISH WAGE INCREASES ACROSS THE WAGE DISTRIBUTION BY GROUPS OF TASK ABSTRACTNESS

Most abstract Least abstract

PLOTTING REGRESSION COEFFICIENTS, EDUCATION#YEAR (BASE EDU <9 YEARS, BASE YEAR 2005)

PLOTTING REGRESSION COEFFICIENTS, EDUCATION#YEAR#ABSTRACTNESS

PLOTTING REGRESSION COEFFICIENTS, EDUCATION#YEAR#ABSTRACTNESS=0

POLARIZED UNEMPLOYMENT…

Unemployment by education group (less than high school, high school, more than high school

CONCLUSIONS

- Inequality has increased, so has job polarization (both in Sweden and in the US, and in other places)

- In the US, returns to education and skill premia have increased, driving much of observed wage dispersion

- In Sweden there is really no evidence of this anywhere in the wage distribution.

- Possibly when looking at wage dispersion within the more abstarct tasks this has increased but overall very small or no effects on the wage distribution

- This doesn’t mean that technology and

automation has not been important in changing the Swedish income distribution…

FUTURE QUESTIONS

- Inequality in Sweden largely driven by changes in capital income- But still unclear what the underlying reasons

are, in particular, their relation to work, skills and education

- Also, changing balance between aggregate capital and labor- But, again, relation between these changes in

relation to technology and skills are unclear

THANKS FOR LISTNING!

JESPER.ROINE@HHS.SE

EXTRA SLIDES

INKOMSTFÖRDELNINGEN I SVERIGE

GLOBAL DISTRIBUTION OF REAL INCOME GAINS 1988-2010, %

GLOBAL DISTRIBUTION OF REAL INCOME GAINS 1988-2010, ABSOLUT TERMS