Technological Change, Occupational Structures and Income Inequality in European Labor Markets

The inquiry how labor markets tend to react to technological changes has been a core concern of economists ever since the early foundations of economics. Until recently, the notion existed that skill-biased technological change (SBTC) could explain all observed phenomena in labor markets. During the last decade however, economists raised concerns that SBTC fails to account for disparate patterns, which induced several economists to develop more ‘nuanced’ models. This paper capitalizes the task-approach framework to labor markets by Acemoglu and Autor (2011), and attempts to show a decomposition of how distinct measures of technological change exert a differential impact on the occupational and income structure of European labor markets. The employed dataset is a panel of 27 European countries abiding the time-period 1995-2014. The analysis indicates that the extent of ‘job polarization’ in European labor markets has been dependent upon the domestic automation patent and R&D expenditure intensity, while especially the domestic high-tech patent intensity mitigates this pattern. Further results show that the effects of technological change on occupational structures resonate fairly well with changes in relative gross income distributions, but have not been translated to similar changes in the disposable income distribution.