Occupational Exposure to Capital-Embodied Technical Change

The Moynihan Institute of Global Affairs’ Trade, Development and Political Economy Series presents Julieta Caunedo speaking on Occupational Exposure to Capital-Embodied Technical Change.

Factor-biased technical change is at the core of the US labor market dynamics in the post-war era. Concurrently, workers’ occupations have become a key dimension for the anatomy of labor reallocation and inequality. This paper furthers our understanding of the heterogeneity in factor-biased technical change across occupations by providing the first direct measures of capital-embodied technical change (CETC) as well as of the elasticity of substitution between labor and capital at the occupational level. We find that CETC vary substantially across occupations and over time, but it is the heterogeneity in the elasticity of substitution that fuels differences in workers’ exposure to technical change and ultimately sets the direction of the labor reallocation triggered by CETC. We evaluate the impact of CETC in a general equilibrium model of endogenous sorting of workers across occupations of different CETC and substitutability between capital and labor. CETC explains 87% of labor reallocation in the US between 1984 and 2015. In an economy with a common elasticity of substitution between capital and labor, measured differences in CETC can only explain 14.5% of the observed labor reallocation.

Julieta Caunedo holds a Bachelor and Post-Graduate Studies from U. Torcuato Di Tella (Argentina) and a PhD in economics from Washington University in St. Louis. Her research interests include macroeconomics and development, with emphasis on the impact of technology for productivity and the labor market. Julieta is an affiliated researcher at CEPR, J-PAL, Y-RISE, ATAI, and a theme leader for STEG.