Job Polarization

Abstract Starting from the debate on job quality, this chapter first gives an overview of the literature on job polarization: the idea that job markets are polarizing into lovely and lousy jobs at the expense of middling jobs originates from the early 1980s. During the following decades, the phenomenon of job polarization was documented for many advanced economies and its drivers became better understood. To summarize the intuition that economists currently have about these drivers, the chapter then provides a simple intuitive framework and some empirical evidence in support of it. The contribution of this framework is that it illustrates the interplay of various channels determining labour and product market outcomes for understanding job polarization: the direct substitutability between differently skilled workers and new digital technologies in production and scale-effects driven by technology-induced changes in the prices of goods and services for consumers. We connect the latter channel to the well-known phenomenon of Baumol’s cost disease. Finally, the importance of these channels is documented by empirical evidence from 13 advanced economies. We find evidence consistent with our framework and compare this with other possible drivers such as globalization. Our analyses imply that job polarization is not a natural law that must hold at all times and in all places but that it critically depends on the nature of technological progress and how it affects equilibria on labour and product markets.