Technology and Skill Demand: Labor Market Polarization in European Countries

This paper adds new evidence on labor market polarization in Europe driven by technological change. In particular, it studies the relationship between displacement and reinstatement effects associated with automation and new tasks on the one hand and the demand for skills on the other. The analysis focuses on a group of advanced European countries and provides robust empirical evidence that technological progress leads to labor market polarization, as the tasks created by new technologies seem to be more suitable for high- and low-skilled workers. In addition to this novel finding of the reinstatement-driven hollowing out of the middle class, we confirm that automation contributes to top-bottom inequality. We also document that men and women are disproportionately affected by displacement and reinstatement technologies, and show that the labor market polarization is strongly associated with middle-aged cohorts of workers.