The rise of automation technologies, and the subsequent polarisation of the labour market into high- and low-skill occupations, not only has a detrimental impact on contemporaneous workers in vulnerable occupations in terms of employment and wages, but also on future generations in terms of educational attainment, intergenerational elasticity and upward mobility. 

That is the central conclusion of research by Jan-Luca Hennig, to be presented at the annual congress of the European Economic Association (EEA) in August 2020. The new study finds that labour market polarisation impedes social mobility for children whose parents work in low-skill occupations.

The ‘American Dream’ supposedly allows everyone to be successful regardless of their geographical and family background. But the United States has turned into one of the least socially mobile countries among advanced economies, and with stark differences within the United States.

At the same time, labour market polarisation affects different parts of the income distribution, in particular middle-income routine occupations. The author exploits variation over time and across commuting zones in the United States to investigate how labour market polarisation influences children along various dimensions.

The author first develops an overlapping-generations model with spatial heterogeneity and three different occupational groups based on the task framework. It focuses on educational choices and cross-generational transitions across educational and occupational groups, which has direct consequences on children’s incomes. The model delivers closed form solutions with testable predictions on educational choices, intergenerational elasticity and upward mobility for children from low-income parents. 

The author confronts the model predictions with empirical evidence exploiting data from Decennial Censuses and the Panel Study of Income Dynamics (PSID). The study first shows that in recent decades, education of young labour force entrants has polarised over time, besides the well-known upskilling. 

The strongest rise in polarisation occurred during the 1990s, which aligns with the timing of the IT revolution. This finding is confirmed when calculating family premia and educational polarisation indices for various education levels dependent on parental background. The research also finds evidence that stronger labour market polarisation leads to more polar educational choices across time and space. 

The model predicts stronger intergenerational elasticity for children whose parents work in either high- or low-skill occupations. This means that the income of children of workers in such occupations depends greatly on the income of their parents. Whereas, for children with parents in routine occupations, which are negatively affected by the rise of IT, elasticity is lower. Empirical evidence confirms these predictions and it shows that the pattern goes hand in hand with progressing labour market polarisation.

Another prediction of the model relates to upward mobility for children from low-income parents. As cross-generational transitions out of manual occupations are less likely with a falling price in IT capital, labour market polarisation impedes social mobility for children whose parents work in these occupations. Precisely, a one percentage point increase in labour market polarisation measured by the decrease in routine employment shares reduces the expected rank of children from low-income children by 0.57. 

These findings are important as they highlight interplay between labour market polarisation and education as a key channel for intergenerational mobility. They show that parents involuntarily pass the detrimental impact of labour market polarisation on their children by limiting the set of educational choice they can attain. 

These results also speak to technological advancement such as robotics and artificial intelligence. They show that in order to allow children from all backgrounds to achieve their potential in the future, it is crucial to identify vulnerable occupations and insure the educational attainment of the children of such workers.


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Jan-Luca Hennig



Twitter: @jlhennig