Essays on Wage Inequality: Occupations, Automation, and Trade

My dissertation consists of three chapters that examine how occupations intersect with automation and international trade to shape wage inequality: The first two chapters examine how effects of automation on spatial wage inequality differ across occupations. The third chapter investigates how occupations matter in determining winners and losers from international trade. In Chapter 1, I first show a novel stylized fact: Since 1980, spatial wage inequality in the US has increased for non-routine occupations, while it has decreased for routine occupations. Since non-routine occupations are at the extremes of the skill distribution, while routine occupations are in the middle, existing models that focus on skill groups cannot explain the novel stylized fact I find. Second, I document that, since 1980, the price of machines in the US has experienced a substantial decline. Finally, I provide background on place-based policies in the US, which aim to reduce spatial wage inequality. In Chapter 2, I develop a quantitative spatial model with three forces: spatial differences in total factor productivity; the supply of machines being more elastic than that of labor; and machines substituting for routine occupations while complementing non-routine occupations. I calibrate my model to the US data in 1980 and show that automation alone explains about 30 percent of the observed changes in spatial wage inequality. Then, I show that place-based policies entail a trade-off between wage differences across places (i.e., spatial wage inequality) and wage differences within places. By raising total factor productivity in lagging places, place-based policies reduce wage differences across places. However, while place-based policies raise wages for all occupations in treated places, wages for non-routine occupations increase more. Non-neutral effects across occupations arise from the difference in supply elasticity between machines and labor. In Chapter 3, I study how occupations matter in determining winners and losers from international trade. A growing body of literature points out that a worker’s occupation plays a crucial role in determining winners and losers from international trade: switching occupations induced by international trade is costly, as occupation-specific human capital accumulation plays a critical role in wage determination. In my dissertation, I propose an additional channel through which occupation plays a role in deciding winners and losers from trade: the comparative advantage of different skill types across occupations. In my model, workers are not perfectly mobile across occupations, as different workers have comparative advantages in different occupations. Due to this imperfect mobility, workers with a comparative advantage in the occupation whose price falls lose from trade, while those with a comparative advantage in the occupation whose price rises benefit from trade.