Job Polarization by Skill Level

If skill level is so important in the U.S. economy, then why are the share of low-skilled jobs in labor force rising? The answer lies with the phenomenon of job "polarization," a decades-long pattern in which the share of of medium-skill jobs is falling, while the share of both high-skill and low-skill jobs is rising. Didem Tüzemen and Jonathan Willis examine some aspects of this phenomenon in "The Vanishing Middle:Job Polarization and Workers’ Response to the Decline in Middle-Skill Jobs," published in the First Quarter 2013 issue of the Economic Review from the Federal Reserve Bank of Kansas City.

For starters, here is a figure showing the share of jobs in high skill, medium skill, and low skill occupations. Clearly, the diminution in middle-skill jobs is a fairly steady long-term trend (although the authors present some evidence that it happens a little more quickly during recessions).

Tüzemen and Willis describe the underlying dynamics in this way. Workers in high-skill occupations "are typically highly educated and can perform tasks requiring anallytical ability, problem solving, and creativity. They work at managerial,professional, and technical occupations, such as engineering, finance,management, and medicine." In contrast, workers in low-skill occupations, typically have no

formal education beyond high school. They work in occupations thatare physically demanding and cannot be automated. Many of these occupations are service oriented, such as food preparation, cleaning, and security and protective services." In the  middle ground, "middle-skill occupations include sales, office and administrative support, production, construction, extraction, installation, maintenance and repair, transportation, and material moving." 

They write: "Workers in middle-skill occupations typically perform routine tasks that are procedural and rule-based. Therefore, these occupations are classified as“routine” occupations. The tasks performed in many of these occupations have become automated by computers and machines ... In contrast, tasks performedin high- and low-skill occupations cannot be automated, making them “non-routine” occupations. Thus, the technical change that boosted the demand for high-skill jobs also contributed to the fall in demand for middle-skill jobs, as computers and machines became cost-effective substitutes for these workers.International trade and the weakening of unions have also contributed to the decline in middle-skill occupations."

Of course, the polarized labor market also means a more polarized income distribution. Intriguingly, they offer a chart of median wages that suggests that it isn't the pay of those at different skill levels that has diverged, but rather the number of people working at jobs at these skill levels.

The authors document a number of patterns about job polarization in the last three decades. For example:

"Given the sharp decline in manufacturing employment in the past three decades, this sector might appear to have been the main driver of job polarization. However, empirical evidence reveals that job polarization has been primarily due to shifts in the skill-composition of jobs within sectors as opposed to the shifts in employment between sectors in the economy. All sectors have experienced declines in the within-sector share of workers in middle-skill jobs. ...  This distinction is important for labor market policy as it suggests that the impact of job polarization has been widespread across the economy rather than concentrated in a single sector, such as manufacturing. ..."

"Job polarization has affected male and female workers differently. In response to the decline in the employment share of middle-skill occupations, employment of women has skewed toward high-skill occupations, while employment of men has shifted proportionally toward low- and high-skill occupations. ..."

"From 1983 to 2012, the employment share of workers age 55 and older in high-skill occupations increased. This shift was related to the aging of the labor force and the delay in retirement of workers in higest demand – those with higher levels of education. In contrast, among workers ages 16 to 24 the largest increase was in the employment share of workers in low-skill occupations. Compared to the 1980s, younger people have been staying in school longer and postponing their entry into the labor force. These developments have shifted the composition of workers in the labor force and suggest that the retirement of the baby boom workers over the next decade may reduce the supply of highly-skilled workers."

For a more detailed description of the causes and effects of job polarization, and how occupations are categorized, a useful and readable starting point is "The Polarization of Job Opportunities in the U.S. Labor Market: Implications for Employment and Earnings," an April 2010 paper written for the Hamilton Project and the Center for American Progress by David Autor, who has been one of the more prolific academic authors in this area. (Full disclosure: Autor is also editor of the Journal of Economic Perspectives, and thus is my boss.)