Research Highlights

Do recessions accelerate the adoption of technology and offshoring?

Routine-biased technological change (RBTC), whereby routine-task jobs are replaced by machines and overseas labor, shifts demand towards high- and low-skill jobs and results in job polarization. In a recent Upjohn Institute working paper, Brad Hershbein and Lisa B. Kahn test whether recessions accelerate this process in the U.S. labor market. In doing so they establish a new fact about the demand for skill over the business cycle. Using a new database containing the near-universe of electronic job vacancies that span the Great Recession, Hershbein and Kahn find evidence of upskilling—firms demanding more-skilled workers when local employment growth is slower—that is sizable in magnitude and largely due to changes in skill requirements within firm-occupation cells. The authors argue that upskilling is driven primarily by firm restructuring of production towards more-skilled workers, and they show that

  • skill demand remains elevated after local economies recover from the Great Recession, driven primarily by the same firms that upskilled early in the recovery;
  • among publicly traded firms in our data, those that upskill more also increase capital stock by more over the same time period; and
  • upskilling is concentrated within routine-task occupations—those most vulnerable to RBTC.

The result is unlikely to be driven by firms opportunistically seeking to hire more-skilled workers in a slack labor market, and the authors rule out other cyclical explanations. Thus they present the first direct evidence that the Great Recession precipitated new technological adoption. Hershbein and Kahn conclude that

“Our results highlight that workers’ ability to adjust to these changes may be especially difficult because the changes are episodic, concentrated in recessions. Thus, large numbers of workers can find their skills depreciated at the same time. If the changes to production instead occurred more gradually, workers would still need to be retrained but . . . on a much smaller scale at any given time.”

Read "Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings," by Brad Hershbein and Lisa B. Kahn.