NBER Working Paper No. 18901
Issued in March 2013
NBER Program(s): EFG LS
What explains the current low rate of employment in the US? While there
has been substantial debate over this question in recent years, we
believe that considerable added insight can be derived by focusing on
changes in the labor market at the turn of the century. In particular,
we argue that in about the year 2000, the demand for skill (or, more
specifically, for cognitive tasks often associated with high educational
skill) underwent a reversal. Many researchers have documented a strong,
ongoing increase in the demand for skills in the decades leading up to
2000. In this paper, we document a decline in that demand in the years
since 2000, even as the supply of high education workers continues to
grow. We go on to show that, in response to this demand reversal,
high-skilled workers have moved down the occupational ladder and have
begun to perform jobs traditionally performed by lower-skilled workers.
This de-skilling process, in turn, results in high-skilled workers
pushing low-skilled workers even further down the occupational ladder
and, to some degree, out of the labor force all together. In order to
understand these patterns, we offer a simple extension to the standard
skill biased technical change model that views cognitive tasks as a
stock rather than a flow. We show how such a model can explain the
trends in the data that we present, and offers a novel interpretation of
the current employment situation in the US.
HT: Floating Path
