Routinization and Covid-19: a comparison between United States and Portugal

De Dominicis, Piero (2020): Routinization and Covid-19: a comparison between United States and Portugal.

Abstract

The purpose of this paper is to identify what is the role of automatization in increasing wage inequality, making a comparison between the two countries. Using PSID and Quadros de Pessoal, we find that labor income dynamics are strongly determined by the variance of the individual fixed component. This effect is drastically reduced by adding information on workers' occupational tasks, confirming that decreasing price of capital and the consequent replacement of routine manual workers have deepened wage inequality. During the current crisis, we find that the ability to keep working is strongly related with the occupation type. As such, we simulate the impact of a permanent demand shock using an overlapping-generations model with incomplete markets and heterogeneous agents to quantitatively predict the impact of Covid-19 and lockdown measures on wage premium and earnings inequality. We find that wage premia and earnings dispersion increase, suggesting that earnings inequality will increase at the expenses of manual workers.

• Item Type: MPRA Paper
• Language: English
• Keywords: Routinization, Wage Inequality, Covid-19, Income processes, Teleworking
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J23 - Labor Demand; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

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