We are overestimating technology''s role as the culprit in the ''hollowing out'' of the UK labour market, as employment in high- and low-skilled jobs has increased at the expense of middle-skill jobs. So says a study by Dr Andrea Salvatori to be presented at the Royal Economic Society''s 2015 annual conference. He argues that in the UK at least, better education is responsible for a third of the decline in middle-skilled jobs.
Between 1979 and 2012, the share of middling jobs declined by 19 percentage points – 16 of which were gained by top occupations, and 3 by bottom ones. Most US-based research points to technology as the overwhelming culprit: automation reduced the demand for middle-skill workers on production lines and in offices, but increased demand for high-skilled managers, professionals and technicians.
The new research analyses the differences between the US and UK labour markets in the 2000s, and finds that the skill composition of the workforce has been more important in the UK than previously thought. In the 2000s, despite technology improvements in both countries, relative employment in top jobs in the UK continued to increase, but stalled in the United States. The author attributes some of this effect to improvements in the quality and numbers of graduates in the UK:
• The entire decline in the share of middling jobs is accounted for by non-graduates, both because their relative numbers have declined and because they have increasingly moved towards bottom jobs.
• The increase in educational attainment accounts for a third of the decline in middling occupations and for the whole increase in top occupations.
• The decline in the share of employment in bottom occupations has been counteracted by the reallocation of non-graduates from middling to bottom jobs.
There have been different patterns in job reallocation in the 2000s to earlier decades, the author finds:
• In the 2000s, the share of natives employed in low-pay occupations has declined for the first time and bottom occupations have only grown due to the contribution of immigrants.
• In the 2000s, the reallocation of workers from the middle to the bottom is not entirely dominated by native non-graduates, but has affected graduates and immigrants as well.
Dr Salvatori concludes:
''My findings do not of course rule out an important role for computers, but they do suggest that predictions about the impact of technology on the distribution of employment should carefully consider the interactions with change in the skill composition of the workforce.''
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What has driven the hollowing out of the US and the UK labour markets of the past 30 years? The (mostly US-based) literature points to technology as the main culprit: automation has reduced the demand for middle-skill workers in production lines as well as offices, increasing that for high-skilled managers, professionals and technicians with little or no impact on the demand for low-skill service occupations.
This study looks at the role of changes in the composition of the workforce in the UK and concludes that the increase in the educational attainment is likely to have played a significant role, particularly in the 2000s when relative employment growth in top occupations continued in the UK despite coming to a halt in the United States.
Between 1979 and 2012, the share of middling jobs declined by 19 percentage points – 16 of which were gained by top occupations and 3 by bottom ones. The entire decline in the share of middling jobs is accounted for by non-graduates, both because their relative numbers have declined and because they have increasingly moved towards bottom jobs. Graduates, on the other hand, have made positive contributions throughout the occupational distribution, primarily because of the sheer increase in their numbers.
Overall, the increase in educational attainment accounts for a third of the decline in middling occupations and for the whole increase in top occupations. The relative performance of wages in top occupations has deteriorated over time relative to middling occupations and it is worst in the 2000s – at a time when the evidence from the United States indicates that technology-fuelled demand for high-skills slowed down.
These facts suggest that the supply of workers for top occupations might have outpaced demand in the UK and contributed to the continuing shift of employment from the middle to the top in the 2000s.
The sustained educational upgrading of the workforce between 1979 and 2012 would have also led to a decline in the share of employment in bottom occupations, but this has been counteracted by other changes. By far the most important factor has been the reallocation of non-graduates from middling to bottom jobs.
Graduates and immigrants have also contributed to the growth of bottom occupations, but their influx alone would have not compensated for the decline induced by improvements in education over the past 30 years. But the picture is different for the most recent decade.
In the 2000s, the share of natives employed in low-pay occupations has declined for the first time and bottom occupations have only grown due to the contribution of immigrants. But even in the most recent decade, growth at the bottom is not explained by compositional changes only.
The net contribution of improvements in education and increase in immigration is a negative 3.0pp. This is more-than-offset by the positive 3.3pp change stemming from the fact that all groups have increasingly been drawn to the bottom. What distinguishes the 2000s from the two earlier decades is that this reallocation of workers from the middle to the bottom is not entirely dominated by native non-graduates, but has affected graduates and immigrants as well.
Overall, this evidence indicates that changes in the composition of the workforce are likely to have played a significant role in the reallocation of employment from middling to top occupations over the past 30 years. This of course does not rule out an important role for computers, but does underline the fact that predictions about the impact of technology on the distribution of employment should carefully consider the interactions with changes in the skill composition of the workforce.
