The effect of routine-biased technical change on wage inequality

Abstract

This article analyzes the relationship between technology and wage inequality by using systematic data on the U.S. labor market during the 1990s. We focus on the technical change allowing automated machines to replace human labor in some occupational tasks previously performed by workers. By using the results established in the literature, we classify occupational tasks as technology-neutral, technology-substitute and technology-complementary. By clustering workers according to the tasks performed on duty, we show that variations in the prices of technologycomplementary tasks explained the observed increase in residual wage inequality in the upper echelon of the wage distribution, whereas variations in the prices of technology-substitute tasks explained the observed reduction of wage inequality in the bottom echelon of the wage distribution. These results conform with the thesis that one of the effects of routine-biased technical change is to hollowing-out the wage distribution.