Job Polarization : Market Responses to Interindustry Wage Differentials

In spite of the rapid growth in job polarization literature, different aspects of job polarization across industries have not yet been studied extensively. In this paper, we show that (1) the degree of job polarization is not the same across different industries and that (2) this observation is related to interindustry wage differentials. In particular, we find that job polarization is more pronounced in industries which paid relatively higher wages than other industries since the early 1980s. We argue that this phenomenon can be explained as the dynamic responses of firms to interindustry wage differentials as shown by Borjas and Ramey (2000) : firms in industries with relatively higher industry wage premia respond by replacing workers with other production factors such as capital. As it is easiest for firms to replace 'middle occupation jobs' with certain types (Information, Communication, and Technology) of capital, labor demand declines disproportionately for firms with higher relative wages, which results in different aspects of job polarization across industries.