TECHNOLOGY AT WORK

February 2015
Citi GPS: Global Perspectives & Solutions
21
It is easier for workers to ‘skill down’ the job
curve but more difficult for them to ‘skill up’
leading to an increase in wages on the top
of the skill distribution
What is the implication of job polarisation for wages? It is not immediately clear that
wages should accelerate at both ends of the skill distribution. The reason is that
while it may be possible for workers to quickly ‘skill down’ – namely, to give up an
automated middle-skill job to take a lower-skilled job which is more heavily in
demand in the labour market – it may not be as easy for them to ‘skill up’ to take
higher-skilled jobs for which wages are accelerating. To skill up requires increased
cognitive capacity, which tends to come about from education and job training –
both slow moving processes. Indeed, this is why some have dubbed our era as a
‘race between technology and education.’ The former occurs rapidly and
disruptively; the latter very slowly. The end result is that additional labour supply
keeps wage growth relatively muted at the bottom, while its absence causes wages
to accelerate quickly at the top.
This appears to empirically be the case when we examine the data on wage growth
globally. In Figure 10, we aggregate the data on hourly wages from the World Input-
Output Database to measure inflation-adjusted real wage growth for three
occupational categories (low-, medium- and high-skill) on the basis of educational
attainment. 41 The trends in Figure 10 do not point toward polarisation in wages.
What does appear to be the case, in general, is that wages for higher-skilled
occupations have grown faster than those for middle- or lower-skilled occupations.
This trend is true for eight of the 15 countries shown in Figure 10, many of which
are large (apart from Spain, Italy and France, where wages in higher-skilled
professions have not fared well, perhaps due to policies limiting labour-market
flexibility in those countries). The eight countries in which wages at the top of the
skill distribution have grown faster than wages at the middle or bottom account for
more than 75% of the GDP produced by all 15 countries in the sample. Growing
wage inequality in these countries has important policy implications, as well as
implications for financial markets, which we elaborate on in a later section of this
report.
Figure 10. Change in employment shares by occupation, 1993-2006
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
Annual Average Percent Change in Real Hourly Wages
N/A
Low Skill Medium Skill High Skill
Portugal
Ireland
Finland
Norway
Netherlands
Greece
United Kingdom
Sweden
Source: Timmer (2012) Note: The hourly wage rate is calculated as total labor compensation divided by total hours worked. We deflate the reported nominal data using national
consumer indexes.
Germany
Spain
Belgium
Denmark
France
Austria
Italy
United States
41 The WIOD data counts jobs requiring lower secondary or primary education as “low
skill,” those requiring post or upper secondary education as “medium-skill,” and those
requiring first or second stage tertiary education as “high-skill.”
© 2015 Citigroup