Does Skill Polarization Affect Wage Polarization? U.S. Evidence 2009–2021

Abstract

(1) Background: Wage polarization and skill polarization are frequently mentioned in the literature, but relatively few empirical studies have focused on the relationship between skill polarization and wage polarization. (2) Methods: Using occupation–skill data from the O*NET database in the United States from 2009 to 2021, this study constructs the occupational socio-cognitive skill scores and the number of perceived physical skills effectively used by an occupation as proxies for measuring skill polarization and matches the Occupational Employment and Wage Statistics data from the corresponding years to explore the relationship between skill polarization and wage polarization by using 2SLS. (3) Results: Increases in both the occupational socio-cognitive skills scores and the number of sensory–physical skills effectively used by an occupation lead to higher wages, but the magnitude of the positive effects of these two indicators are different. We also find that these control variables can reduce occupational wages with a lagged effect. (4) Conclusion: Our findings confirm that skills polarization has a positive effect on wage polarization, providing new insights into understanding employment inequality in the labor market. Authorities should focus more attention on increasing the earnings of the low- and middle-skilled workers, especially through vocational skills training to increase the number of sensory–physical skills that can ultimately mitigate wage polarization.