Friday, September 8, 2017

One More Explanation for Increasing Wage Inequality

Wage inequality is increasing.

In America, contemporary discussion often presents this is in political and social terms: market-oriented policies pushed by Republicans (and some Democrats) over the last 35 years have increased inequality.

This argument has a serious weakness, that is well-known outside the realm of politicians and pundits. This is that wage inequality is getting worse in many countries around the globe, particularly in the developed ones. It’s difficult to see how market-oriented policies within the U.S. could have produced that result outside the country.

There’s new evidence from Sweden that it’s about higher pay for non-cognitive skills.

Cognitive tasks are technical and/or quantitative. Think math. Non-cognitive skills are sometimes called soft skills or people skills.

The theory is that we are offloading cognitive tasks onto computers, making those skills less valuable. So demand for cognitive skills is shifting left, freeing up funds for a shift in the demand for non-cognitive skills to the right, increasing their price.

This increase occurred primarily in the private sector, among white-collar workers, and at the upper-end of the wage distribution.

… Workers with an abundance of non-cognitive skill were increasingly sorted into occupations that were intensive in: cognitive skill; as well as abstract, nonroutine, social, non-automatable and offshorable tasks. Such occupations were also the types of occupations which saw greater increases in the relative return to non-cognitive skill. This suggests sorting on comparative advantage …

Via Marginal Revolution.

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