Spillovers from High-Skill Consumption to Low-Skill Labor Markets

Abstract

Census data show that low-skill workers in the United States are increasingly employed in the provision of non-tradeable time-intensive services-such as food preparation and cleaning-that can be broadly thought as substitutes of home production activities. Consumer expenditure data show that the fraction of household spending in these services is increasing with the head's wage rate, consistent with the predictions of standard economic theory. These stylized facts suggest a "consumption story" for how the physical presence and productivity gains of skilled workers might affect the employment and earnings opportunities of unskilled workers. Using the presence of land grant institutions as an instrument for the supply of college graduates (Moretti, 2004), we find that a larger share of skilled individuals in a city workforce is associated with a larger share of unskilled workers being employed in outsourced home production activities. This finding shows that imperfect substitution in production and human capital externalities might not be the only reason why unskilled wages are higher in skilled cities. We also find that the association between wage growth at the top and wage growth at the bottom of a city wage distribution (with respect to the growth at the median) is larger in cities with a larger proportion of low-wage workers employed in outsourced home production activities in a base year. This finding suggests that the steady increase in the market returns to skill in the last three decades, together with somewhat more sluggish changes in consumption patterns, might provide a viable explanation for some of the wage compression in the lower half of the wage distribution observed in the 1990s

Technology and Occupations in Business Cycles

“…Different explanations have been proposed in the empirical literature to account for polarisation. Beside technology, other factors explaining patterns of job polarisation have included international trade and offshoring [38][39][40][41], consumption spill overs [42,43], ageing of population [44], labour market rigidity [45]. The routinisation hypothesis shifts the analysis from skills to tasks arguing that the introduction of computer capital-on the one hand-substitutes for workers in performing cognitive and manual tasks, on the other hand complements workers in performing non-routine problem-solving tasks.…”

Imbalanced Job Polarization and Skills Mismatch in Europe

“…In the United States, polarization of jobs has also been linked to growing wage inequality. Based on census data, it was found that the growing share of incomes going to high-skilled workers has increased demand for non-tradeable time-intensive services that are difficult to automate -such as food preparation and cleaning -provided by low-skilled workers (the 'consumption hypothesis') (Mazzolari and Ragusa 2013). Based on data for 16 countries, strong evidence for the routinization hypothesis was found in Europe, and only weak evidence for the effects of offshoring and inequality on job polarization (Goos et al 2009).…”

Does the presence of high-skilled employees increase total and high-skilled employment in the long run? Evidence from Austria

“…For a positive impact of rising shares of skilled workers on total employment, low-skilled employment has to have a good employment performance, too. Indeed, a positive indirect impact of high-skilled employment on low-skilled employment is emphasised by Glaeser (2013) and documented for the US during the 1990s by Mazzolari and Ragusa (2013). The related question on whether regional human capital endowments diverge is derived in the economic geography literature as the equilibrium outcome of concentration and dispersion forces.…”