Labor Market Polarization, the Decline of Routine Work, and Technological Change: A Quantitative Analysis * Christian vom Lehn †

Abstract Technological change is a prominent hypothesis for the recent polarization of the labor market and the related decline for occupations specializing in performing routine tasks. In this paper, I provide a quantitative evaluation of this hypothesis. To do so, I build an extension of the standard growth model which allows for endogenous determination of the demand and supply for occupational labor in response to investment specific technological change. I further evaluate the extent to which this channel of technological change can account for recent declines in aggregate employment and the labor share of income. My analysis finds that technological change is able to account for a large fraction of changes in occupational employment and earnings, as well as the decline in the labor share, through the year 2000, but is unable to reconcile many of these patterns in the subsequent decade. In particular, after 2000, the model significantly overpredicts wages and hours for higher skilled occupations. This is at odds with both the recent measured slowdown in demand for these occupations as well as the hypothesis that slowing technological change can account for this phenomenon. JEL codes: E24, J24, O33 * I am deeply indebted to Richard Rogerson, Esteban Rossi-Hansberg, Mark Watson, and Tom Winberry for their feedback on this project. This paper is a substantially revised version of chapter 1 of my PhD dissertation completed at Princeton University. I am also very grateful for helpful comments and suggestions fro