In recent decades labor markets in many developed countries have become increasingly polarized: middle-wage occupations have been declining, while employment in both high- and low-wage occupations has increased. Many studies point to increasing automation and offshoring of routine middling jobs as the main drivers of this phenomenon; however, little research has focused on these changes at the firm level. Because not all firms have the same characteristics (wage levels, management strategies, etc.), different organizational structures and behavior in firms could be pushing some of this labor market polarization.
The new IZA discussion paper by Guido Matias Cortes and Andrea Salvatori is the first to look at job polarization in Great Britain using workplace level data rather than individual or industry level data. The authors have new evidence that shows that changes in occupational shares (i.e. the growth in low-paid and high-paid employment at the expenses of middling jobs) are closely linked to changes in specialization at the workplace level. The extent of these changes are remarkable – the proportion of workplaces specialized in a high-skill occupation has increased from 30% to 50% in just over a decade (1998-2011).
Boundaries of the firm redefined
Cortes and Salvatori find little indication that technology is driving these changes through the channels typically emphasized both in academic papers and the popular press, namely the substitution of workers with machines. Instead, the researchers find evidence that this increased specialization at the workplace level is linked to the growth in the outsourcing by firms of cognitive activities, such as payroll and computing services.
The authors explain the importance of their findings:
- For the first time job polarization has been shown to be associated with a reallocation of workers across different firms – someone employed in a high-skilled occupation today is much more likely to be working in a workplace specialized in their own occupations than ten years ago. This has potential implications for inequality because other studies have shown that where one works greatly matters for wages and working conditions.
- The results suggest that the current debate on the effect of technology on employment is overlooking one important channel through which such an effect can unfold: technology allows for the redefinition of the boundaries of the firm, a phenomenon with implications for both the quality and quantity of jobs.