Changing Labor Market Leads to Job Polarization

In the U.S., jobs have become increasingly low-skill (such as personal services or food preparation) or high-skill (such as management and professional occupations), a transition commonly known as job polarization. What is behind this trend, and how does it affect the U.S. and the Eighth Federal Reserve District?¹

Economist Maximiliano Dvorkin and Senior Research Associate Hannah Shell explored the issue of job polarization in a recent edition of The Regional Economist.

Shifting Jobs

During recent decades, the U.S. labor market has shifted away from jobs involving routine tasks (such as manufacturing, construction and production jobs) toward those with nonroutine tasks (such as managerial, professional and service jobs). As routine occupations tend to hire middle-skill workers, the result of this shift has been job polarization.

To study the polarization of the labor market, Dvorkin and Shell broke down the U.S. government’s comprehensive list of occupations—called the Standard Occupational Classification—into four groups:

• Cognitive nonroutine: occupations that draw on mental skills and involve adapting to the project at hand, such as managers and computer scientists
• Cognitive routine: occupations involving repetitive, nonphysical tasks, such as office and administrative staff
• Manual routine: occupations including those that require physical labor, such as manufacturing and construction
• Manual nonroutine: occupations including those that provide adaptive services based on the required task, such as retail workers and personal-care associates

Job Growth and Wage Trends

They then looked at the average employment growth and average real wages for these categories in both the overall U.S. and the District², shown in the tables below.

Employment Growth among Types of Occupations, 2004-2014
	All	Cognitive Nonroutine	Cognitive Routine	Manual Routine	Manual Nonroutine
Average Annual Percent Change from 2004-2014
U.S.	0.6%	1.6%	0.1%	-1.1%	1.8%
Eighth District	0.3%	1.4%	-0.3%	-0.9%	1.3%
SOURCES: Occupational Employment Statistics and authors' calculations.
Federal Reserve Bank of St. Louis

Average Annual Wage among Types of Occupations, 2004-2014
	Cognitive Nonroutine	Cognitive Routine	Manual Routine	Manual Nonroutine
U.S.	$70,630	$41,970	$37,980	$26,070
Eighth District	$62,980	$32,980	$36,190	$22,040
NOTE: In 2014 dollars. Figures have been rounded to nearest $10.
SOURCES: Occupational Employment Statistics and authors' calculations.

The authors found that job polarization is as much an issue for the Eighth District as the nation.

“In both the District and the nation, employment in nonroutine occupations, either cognitive or manual, grew the fastest,” Dvorkin and Shell wrote. “Employment in cognitive routine occupations grew at a very modest pace in the nation and declined in the District; manual routine occupational employment decreased in the nation and the District.”

In terms of wages, routine occupations tended to be in the middle of the wage distribution, while cognitive nonroutine occupations had much higher wages and manual nonroutine occupations typically had the lowest wages.

“This wage difference highlights the polarization in the labor market, as employment grows the most at the polar opposites of the wage distribution,” they wrote.

What Is Driving Polarization?

The authors offered several reasons why job polarization occurred between 2004 and 2014:

• Automation of routine and repetitive tasks decreased employment in routine occupations. As computers and technology advanced, fewer repetitive-task jobs were available.
• Increased globalization allowed some stages of the U.S. production process to be performed in foreign countries where labor is cheaper. This outsourcing also decreased employment in routine-task occupations.

For both the U.S. and the District, employment in routine-based occupations has been declining, while employment in nonroutine occupations has been increasing, the authors wrote.

“This shift results in a wage gap between the highly paid cognitive nonroutine occupations and the low-paying manual nonroutine jobs,” Dvorkin and Shell concluded. “This shift may be an important driver of increasing income inequality in both the District and the nation.”

Notes and References

¹ Headquartered in St. Louis, the Eighth Federal Reserve District includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

² The authors used state-level data for all Eighth District states except Illinois. They excluded data from Illinois because Chicago is the main driver of that state’s statistics and is outside the District.

Additional Resources

• Regional Economist: Labor Market Polarization: How Does the District Compare with the Nation?
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