Wage Shocks and the Technological Substitution of Low-Wage Jobs

Authors

Daniel Aaronson, Federal Reserve Bank of Chicago
Brian Phelan, DePaul University

Publication Date

12-15-2016

Series

Upjohn Institute working paper ; 17-266

**Published Version**

In The Economic Journal, 129(617): 1-34

DOI

10.17848/wp17-266

Abstract

We extend the task-based empirical framework used in the job polarization literature to analyze the susceptibility of low-wage employment to technological substitution. We find that increases in the cost of low-wage labor, via minimum wage hikes, lead to relative employment declines at cognitively routine occupations but not manually-routine or non-routine low-wage occupations. This suggests that low-wage routine cognitive tasks are susceptible to technological substitution. While the short-run employment consequence of this reshuffling on individual workers is economically small, due to concurrent employment growth in other low-wage jobs, workers previously employed in cognitively routine jobs experience relative wage losses.

Issue Date

December 15, 2016

Sponsorship

W.E. Upjohn Institute for Employment Research Early Career Research Award 15-150-11

Subject Areas

LABOR MARKET ISSUES; Wages, health insurance and other benefits; Minimum wage