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Technological progress does not polarize the German labor market

28 September 2017 European Regional Science Association

“Of course, digitalization and automation also impact Germany”, states Uwe Blien from the German Institut für Arbeitsmarkt- und Berufsforschung (IAB). But in his presentation at the 10th Summer Conference of the German Speaking section of ERSA, the European Regional Science Association, in Vienna, Austria, Blien points out that „technological progress threatens routine occupations also in Germany, but the effect is different from what we see in the USA“. While this transformation hits particularly middle-income workers in the USA leading to a polarization in society, the researcher finds little evidence for such a polarization in the German labor market.

Technological progress in Germany implies a shift toward higher paying and less routine occupations

Based on an extensive analysis of the rich dataset of the IAB, Blien and his IAB-colleagues Wolfgang Dauth and Duncan Roth identify occupations that are particularly vulnerable in the technological transformation. Contrary to the USA, these occupations are much more concentrated at the lower end of the wage distribution in Germany. The decline of those occupations therefore does not polarize the labor market, but imply a shift toward higher paying and less routine occupations which are less at risk to be hit by the negative implications of technological change.

 Other positive effects of technological progress in Germany

The empirical analysis of the paper concentrates on the jobs and occupations that are replaced by computers, robots, and other forms of automation. Blien emphasizes that technological progress also has positive implications. Innovations boost productivity, lead to lower prices, to higher product demand, and through this mechanism also to higher employment. Whether the net effect is positive or negative, remains to be seen.

Urban labor markets provide more scope for workers' transition to less vulnerable low-routine occupations

The IAB data also allow the researcher to investigate the labor market strategies of the workers at risk. Although their analysis at this individual level is preliminary and needs further refinement, Blien and his colleagues find that a large share of the workers in risky occupations are able to move to other occupational categories. Some end up in unemployment or have to leave the labor force altogether, but many also change to occupations with better growth performance and lower routine.

„There are still many aspects that need to be analyzed like differences by gender and age“, Blien emphasizes. At a regional level the analysis shows that denser urban labor markets generally provide more scope for workers' transition to less vulnerable low-routine occupations.

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