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

Nick Bloom, Stanford University, Labor Topics, Top 1% Polarization

Nick Bloom, Stanford University, Labor Topics, 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

Nick Bloom, Stanford University, Labor Topics, 2015 First they establish that routine tasks are most concentrated in median paid jobs 4 Source: Goos and Manning (2008, RESTAT)

Nick Bloom, Stanford University, Labor Topics, 2015 They then show median jobs have shrunk, with a J-curve across all (UK) jobs 5 Source: Goos and Manning (2008, RESTAT)

Nick Bloom, Stanford University, Labor Topics, 2015 The jobs that have expanded are either non- routine manual or non-routine cognitive 6 Source: Goos and Manning (2008, RESTAT)

Nick Bloom, Stanford University, Labor Topics, 2015 And in fact many low skilled jobs have grown 7 Source: Goos and Manning (2008, RESTAT) And that’s despite relabelling (i.e. “cleaners” now being called “sanitation consultants” or some other ridiculous name)

Nick Bloom, Stanford University, Labor Topics, 2015 These changes are within and between industries 8 Source: Goos and Manning (2008, RESTAT)

Nick Bloom, Stanford University, Labor Topics, Source: Acemoglu and Autor (2010, HLE) The Acemoglu and Autor paper shows similar polarization by occupation (US data)

Nick Bloom, Stanford University, Labor Topics, Source: Acemoglu and Autor (2010, HLE) In fact this polarization is global in scope

Nick Bloom, Stanford University, Labor Topics, Source: Autor and Dorn (2013, AER) Recent Autor and Dorn paper argues clear service/non-service difference in low skill

Nick Bloom, Stanford University, Labor Topics, 2015 Polarization of US incomes too (1/2) 12 Source: Guvenen, Ozkan and Song (2013)

Nick Bloom, Stanford University, Labor Topics, 2015 Polarization of US incomes too (2/2) 13 Source: Autor and Dorn, (2013, AER)

Nick Bloom, Stanford University, Labor Topics, Top 1% Polarization

Nick Bloom, Stanford University, Labor Topics, 2015 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. (administrative data) While this is not closely related to SBTC, there are some parallels (and I think it’s another important topic) 15

Nick Bloom, Stanford University, Labor Topics, 2015 First result is incomes are very skewed! 16 Source: Sept Update to Piketty and Saez (2003)

Nick Bloom, Stanford University, Labor Topics, 2015 Cross sectional income distribution 17

Nick Bloom, Stanford University, Labor Topics, 2015 Second, recent income growth is also skewed (so skew likely to keep rising) 18 Source: Sept Update to Piketty and Saez (2003)

Nick Bloom, Stanford University, Labor Topics, 2015 Third, this inequality (at least for top income shares) has a U-shape over 20 th Century 19 Source:

Nick Bloom, Stanford University, Labor Topics, 2015 Third, this inequality (at least for top income shares) has a U-shape over 20 th Century 20 Source:

Nick Bloom, Stanford University, Labor Topics, 2015 Reason fall in capital incomes from WWII onwards, with rebound only via wage income 21 Source: July 2010 Update to Piketty and Saez (2003) Early 20 th century super rich collected dividends, probably from fortunes accumulated in 19th Century. By end 20 th century more wage incomes

Nick Bloom, Stanford University, Labor Topics, Reason fall in capital incomes from WWII onwards, with rebound only via wage income Source:

Nick Bloom, Stanford University, Labor Topics, 2015 Similar results for wealth (not incomes) 23 Source:

Nick Bloom, Stanford University, Labor Topics, 2015 The UK pattern is similar to the US 24 Source: Atkinson (2003)

Nick Bloom, Stanford University, Labor Topics, 2015 Canada is similar too 25 Source:

Nick Bloom, Stanford University, Labor Topics, 2015 As always the French have to be different 26 Source: Atkinson (2003)

Nick Bloom, Stanford University, Labor Topics, 2015 Japan and Sweden similar to France 27 Source:

Nick Bloom, Stanford University, Labor Topics, 2015 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). 28

Nick Bloom, Stanford University, Labor Topics, 2015 An alternative and interesting take (from Greg Mankiw’s blog) 29