Gola published in Journal of Political Economy

27 August 2020

New insight on how technology affects wages.

Pawel Gola 3Journal of Political Economy is one of the top five economics journals in the world, publishing some of the most important and influential research in the field. They recently accepted a paper by Assistant Professor Pawel Gola about whose wages go up when industries introduce new production technologies, and whose wages go down. Head of the Department of Economics Tommy Sveen is impressed:

- Congratulations to Pawel on his significant achievement! Top-level publications like this is a significant step towards getting tenure. The findings he presents in the paper are important for our understanding of the distributional consequences of technological change, he says.

- It matters a lot whether the change in technology makes firms in different sectors value more similar or more different skill sets. For example, 40 years ago, architects and machine operators needed completely different skill sets, but today both jobs require a fair degree of computer skills. When technology develops like this, the wages of top earners typically increase greatly compared to medium earners, while the wages of low earners increase somewhat compared to medium earners. This is what we refer to as wage polarization, says Gola.

Lately, however, research suggests the wages of medium earners in some countries (for example Sweden) have increased more than both top and low earners. Gola’s paper points to a possible cause for this, as the most recent technological change in the 2010s may actually have decreased the extent to which firms value similar skills. It also provides a note of caution:

- If, say, the manufacturing sector starts valuing skills that were previously valued mostly by firms in services, this will increase wage polarization in both sectors, and possibly more so in services than in manufacturing! So if we see that wages have been dramatically changing in services, we should not immediately assume that the underlying change in technology must have also occurred in the services sector, says Gola.

You can read a postprint of the paper here.

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