Saturday, 15 February 2014
Water Tower (Hyatt Regency Chicago)
What explains the current low rate of employment in the US? In this paper, we argue that the year 2000 represents a turning point for the economy in the sense that there has been a major shift in skill demands. In the decades leading up to 2000, many observers have documented a strong growth in the demand for skills and workers performing cognitive tasks. As we document, starting at the turn of the century, the strong demand for skills reverses while the supply of skills continues to grow. In response to this demand shift, we show that high-skill workers move down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. As a result of this de-skilling process, high-skill workers push low-skilled workers further down the occupational ladder and 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.