1. Nick Bloom, Stanford University, Labor Topics, 2011 1 LABOR TOPICS Nick Bloom Polarization and inequality

2. Nick Bloom, Stanford University, Labor Topics, 2011 2 Inequality Polarization

3. Nick Bloom, Stanford University, Labor Topics, 2011 3 ALM (2003) predicts labor market polarization Goos and Manning (2008, RESTAT) point out in the paper “Lousy and lovely jobs” that routine tasks are most substitutable by computers Hence, occupations with a high input of routine tasks should expect to see the largest falls in employment and income from computerization They test this using both US and UK data and find supportive evidence

4. Nick Bloom, Stanford University, Labor Topics, 2011 First they establish that routine tasks are most concentrated in median paid jobs 4 Source: Goos and Manning (2008, RESTAT)

5. Nick Bloom, Stanford University, Labor Topics, 2011 They then show median jobs have shrunk, with a J-curve across all jobs 5 Source: Goos and Manning (2008, RESTAT)

6. Nick Bloom, Stanford University, Labor Topics, 2011 The jobs that have expanded are either non- routine manual or non-routine cognitive 6 Source: Goos and Manning (2008, RESTAT)

7. Nick Bloom, Stanford University, Labor Topics, 2011 And in fact low most skilled jobs have grown 7 Source: Goos and Manning (2008, RESTAT)

8. Nick Bloom, Stanford University, Labor Topics, 2011 These changes are within and between industries 8 Source: Goos and Manning (2008, RESTAT)

9. Nick Bloom, Stanford University, Labor Topics, 2011 9 Source: Acemoglu and Autor (2010, HLE) And as mentioned last lecture this polarization is international in scope

10. Nick Bloom, Stanford University, Labor Topics, 2011 10 Inequality Polarization

11. Nick Bloom, Stanford University, Labor Topics, 2011 Related topic is the change in inequality over time Well known paper by Piketty and Saez (2003, QJE) looks at income inequality over time, focusing on top 1% They do this by assembling a variety of IRS related sources on income and estate taxes paid, plus some other supportive data on CEO pay etc. While this is not closely related to SBTC, there are some parallels (and I think it’s another important topic) 11

12. Nick Bloom, Stanford University, Labor Topics, 2011 First result is incomes are very skewed 12 Source: July 2010 Update to Piketty and Saez (2003)

13. Nick Bloom, Stanford University, Labor Topics, 2011 Second, this inequality (at least for top income shares) has a U-shape over 20 th Century 13 Source: July 2010 Update to Piketty and Saez (2003)

14. Nick Bloom, Stanford University, Labor Topics, 2011 Particularly striking changes for very top income shares (super rich people like me…) 14 Source: July 2010 Update to Piketty and Saez (2003)

15. Nick Bloom, Stanford University, Labor Topics, 2011 Reason fall in capital incomes from WWII onwards, with rebound only via wage income 15 Source: July 2010 Update to Piketty and Saez (2003) Early 20 th century super rich collected dividends, probably from fortunes accumulated in19th Century. By end 20 th century more wage incomes

16. Nick Bloom, Stanford University, Labor Topics, 2011 Reason fall in capital incomes from WWII onwards, with rebound only via wage income 16 Rockefeller dividend incomeInvestment banker wage income Kaplan and Rauh (2009, RFS) find very top comprises Wall Street, Main Street CEOs, lawyer and celebs & atheletes, with Wall Street dominating In 2007 top 25 hedge fund managers earned > all 500 S&P CEOs!

17. Nick Bloom, Stanford University, Labor Topics, 2011 The UK pattern is similar to the US 17 Source: Atkinson (2003)

18. Nick Bloom, Stanford University, Labor Topics, 2011 But as always the French have to be different 18 Source: Atkinson (2003)

19. Nick Bloom, Stanford University, Labor Topics, 2011 So what explains these long-run moves in income inequality? Piketty and Saez (2003) speculate one factor is much higher levels of wage and capital income tax since WWII –Slows down the accrual of multi-generational fortunes Another factor could be regulation of top pay (e.g. particularly during WWII) combined with social-norms (e.g. after WWI greater power of unions and left wing). SBTC may also be a factor, although hard to square with different French experience (which had no wage income recovery in late 20 th Century). 19