Question

1. [25 marks]  What is meant by the term “wage polarisation”? Define skills biased technological change and explain how this concept helps your explanation.
2. [25 marks]  Discuss recent evidence for wage polarisation.  Have improvements in computing caused wage polarisation? Explain, outlining the arguments and evidence thoroughly.  

Answer 1

1. Wage polarization is the phenomenon in which the wages gained by middle level employees is significantly less than, the wages gained in the extremes, i.e. top level employees and the bottom level employees. In simple words, the wages are polarized for the middle level employees in a firm, and their growth is affected ultimately. This can be attributed to the bias in skills. A low level employee is having the least number of skills, and is given the job which can be finished off with that skill set. And same goes with top level employees having more number of skills. But the middle level employees get stuck in between as they are expected to do tasks with moderate level of skills thereby not falling in any category and ultimately gratification through wages also cease. Skills biased technological change prefers skillful and well educated employees who can potentially increase the productivity of a firm. They are hired in order to chuck out the mediocrity brought about by the middle level employees having moderate skills at their disposal. The mass layoffs you read in the newspapers mostly concern with the firing of these middle level employees who have outdated skill set. And if at all firm decides not to fire them, as you have seen wage polarization occurs thus not gratifying them with wage gains due to moderate skill set.

2. With the COVID'19 pandemic, we are not surprised to look at mass layoffs in a plethora of firms like Uber, Boeing, Rolls Royce, etc. A zoom call is more than enough to let you know that you're fired! Observing the trends, studies suggests that most of the laid off workers are middle level employees. This is because of their outdated skill set needed to perform tasks expected of them. With regards to wage polarization, almost every employee in the firm faces a pay cut due to the pandemic, with high and middle level employees taking the majority of the burden. The disruptive technologies are procured in many of the firms which feel a lack of productivity. Especially AI which is able to do a myriad of tasks at a single go, it simply replaces a lot of middle level employees and polarize the wages of the rest of them. Wages are nothing but the gratification for the work you've done and the effort you have put in to finish the task. When Technology is able to do the same task more efficiently, why would an employer pay you the same money for less work. Hence, a polarization occurs in the fields where there is a significant shift towards computation.

A striking example would be of the automobile industry. Automation in assembling, designing, etc has prompted layoffs and wage polarization across the world. A profit maximizing firm tries to reduce its costs, so they react with the wages as the automation set up is a one time investment and is permanent unless wear and tear. Basically a scenario arises where humans compete with AI to earn the employer's trust.

Hope this helps. Do hit the thumbs up. Cheers!