The Great Reversal in the Demand for Skill and Cognitive Tasks

Note mentioned in WSJ (Attached)

paper you requested cited in WSJ article on college wage premium to support, "...After the tech bust of the early 2000s, the economy demanded less of the type of cognitive skills that college graduates typically have....As a result, college graduates started taking up jobs previously held by those who went only to high school, pushing down wages for high-school graduates. College grads thus maintained an earnings advantage over nongrads, but their real wages didn’t rise...."

Paul Beaudry, David Green and Benjamin Sand, "The Great Reversal in the Demand for Skill and Cognitive Tasks," National Bureau of Economic Research, March 2013, https://www.nber.org/papers/w18901.pdf

"..In this paper, we present theory and evidence suggesting that to understand the current low rates of employment in the US one needs to recognize the large reversal in the demand for skill and cognitive tasks that took place around the year 2000. In particular, we have argued that after two decades of growth in the demand for occupations high in cognitive tasks, the US economy reversed and experienced a decline in the demand for such skills. The demand for cognitive tasks was to a large extent the motor of the US labor market prior to 2000. Once this motor reversed, the employment rate in the US economy started to contract. As we have emphasized, while this demand for cognitive tasks directly effects mainly high skilled workers, we have provided evidence that it has indirectly affected lower skill workers by pushing them out of jobs that have been taken up by higher skilled worker displaced from cognitive occupations. This has resulted in high growth in employment in low skilled manual jobs with declining wages in those occupations, and has pushed many low skill individual's out of the labor market.....we argue that in about the year 2000, the demand for skill (or, more specifically, the demand for cognitive tasks that are often associated with high educational skill) underwent a reversal, and that this reversal can help in understanding poor labor market outcomes after 2000 more generally.... The key idea is that the IT revolution, and the revolution in organizational form that has gone with it, can be seen as a General Purpose Technology (GPT) and, like all GPTs before it, it will eventually reach maturity. If the implementation of the GPT has a capital investment form and cognitive tasks are a key component of the investment then, under reasonable conditions, demand for cognitive tasks will have an over-shooting property. During the key investment stage, there will be high and growing demand for cognitive tasks to build the new capital, but once the new capital is in place, cognitive task workers are only needed to maintain the new capital. At this maturity stage, there will be greater demand for cognitive tasks than before the technological revolution but we will see a reduction in demand for these tasks relative to the investment stage. We argue that the turn of the century is that approximate turning point from the investment to the maturity stage....Our second main contribution is that we provide a detailed picture of the changes in employment patterns and wages over the last thirty years with a particular focus on the reversal in the growth in demand for more cognitive intensive occupations and the adjustment of more skilled workers to this change. Importantly, we view this contribution as standing even if the reader is not convinced about our specific story behind the cognitive task demand reversal.....But all three task prices fall in the 2000s and, notably, are declining well before the onset of the late 2000s recession. Our measure of the cognitive task price falls by about 2% in real terms, fitting with our story of declining demand for these tasks. This decline is dwarfed by the 8% decline in the price of manual tasks. The latter drop fits with our claim that the manual task market in the 2000s can be characterized as being dominated by an outward supply shift. To complete the wage picture,in Figure 30 we report changes in real wage by deciles for young workers when we do not divide by education level. This has both advantages and disadvantages relative to the earlier figures controlling for education. On the one hand, if there has been sorting of individuals between education groups over the period in question, the distribution of unobservable skill within an education group may change, and comparing percentiles while conditioning on education is less clean as a measure of task prices. On the other hand, increases in educational attainment over time may change the quality at a given percentile. Hence, we choose to present results with and without conditioning on education. When we do not condition on education, as in Figure 30, the 1990s show a clear ‘U’ shaped wage growth pattern that has been documented elsewhere....In this paper, we document a decline in that demand in the years since 2000, even as the supply of high education workers continues to grow. We go on to show that, in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together...."

Paper finds that in 2000 demand for skill (for cognitive tasks often associated with high educational skill, they are using education as a proxy for skill) underwent a reversal and high-skilled workers have started to moved down the occupational ladder and have begun to perform jobs traditionally performed by lower-skilled workers