Working Paper

Wage Shocks and the Technological Substitution of Low-Wage Job


Abstract: We extend the task-based empirical framework used in the job polarization literature to analyze the susceptibility of low-wage employment to technological substitution. We find that increases in the cost of low-wage labor, via minimum wage hikes, lead to relative employment declines at cognitively routine occupations but not manually-routine or non-routine low-wage occupations. This suggests that low-wage routine cognitive tasks are susceptible to technological substitution. While the short-run employment consequence of this reshuffling on individual workers is economically small, due to concurrent employment growth in other low-wage jobs, workers previously employed in cognitively routine jobs experience relative wage losses.

Keywords: Minimum wage; Routine tasks; Technological substitution;

JEL Classification: J24; J38;

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Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2017-01-15

Number: WP-2017-3

Pages: 58 pages