Explaining job polarization: the roles of technology, offshoring and institutions

This paper develops a simple and empirically tractable model of labor demand to explain recent changes in the occupational structure of employment as a result of technology, offshoring and institutions. This framework takes account not just of direct effects but indirect effects through induced shifts in demand for different products. Using data from 16 European countries, we find that the routinization hypothesis of Autor, Levy and Murnane (2003) is the most important factor behind the observed shifts in employment but that offshoring does play a role. We also find that shifts in product demand are acting to attenuate the impacts of recent technological progress and offshoring and that changes in wage-setting institutions play little role in explaining job polarization in Europe.