T ECHNOLOGICAL CHANGE AND THE WAGE DISTRIBUTION - T HE STRANGE CASE OF S WEDEN Presentation at ELF workshop, 10 November, 2015 Jesper Roine, SITE, Handelshögskolan i Stockholm

M OTIVATING OBSERVATION : THE L ONG RUN DISTRIBUTION OF INCOME Large changes in the income distribution over past years (in Sweden and elsewhere) Question: To what extent can this be explained by technological change?

O VERALL B ASIC QUESTION : H OW DOES TECHNOLOGICAL CHANGE ALTER THE D ISTRIBUTION 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

T WO 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

T HE EFFECTS OF T ECHNOLOGY 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.

S OME E MPIRICAL F ACTS 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:

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:

OECD- WIDE JOB POLARIZATION Adapted from Goose, Manning, Salomonsen, AER 2014.

M ORE DETAILED PICTURE FOR S WEDEN From Adermon och Gustavsson, 2015

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

S UMMARY OF E XPLAINING 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?

S WEDISH W AGE INCREASES BY EDUCATION,

C HANGE IN S WEDISH WAGES ACROSS ” SKILL LEVELS ” ( RANKED BY 1996 WAGE LEVEL )

C HANGES IN WAGES ACROSS DIFFERENT LEVELS OF A BSTRACT, R OUTINE AND S ERVICE CONTENT OF THE OCCUPATION GROUP

S WEDISH WAGE INCREASES ACROSS THE WAGE DISTRIBUTION BY GROUPS OF T ASK A BSTRACTNESS Most abstractLeast abstract

P LOTTING REGRESSION COEFFICIENTS, E DUCATION #Y EAR ( BASE EDU <9 YEARS, BASE YEAR 2005)

P LOTTING REGRESSION COEFFICIENTS, E DUCATION #Y EAR #A BSTRACTNESS

P LOTTING REGRESSION COEFFICIENTS, E DUCATION #Y EAR #A BSTRACTNESS =0

P OLARIZED UNEMPLOYMENT … Unemployment by education group (less than high school, high school, more than high school

C ONCLUSIONS - 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…

F UTURE 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

T HANKS FOR LISTNING ! JESPER. HHS. SE

E XTRA SLIDES

I NKOMSTFÖRDELNINGEN I S VERIGE

G LOBAL DISTRIBUTION OF REAL INCOME GAINS , %

G LOBAL DISTRIBUTION OF REAL INCOME GAINS , A BSOLUT TERMS