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Hollowing out and the future of the labour market – the myth

Butcher, B., (2013), “Hollowing out and the future of the labour market – the myth”, VoxEU, 17 December.

The labour market ‘hollowing out’ thesis suggests that there are far fewer intermediate-level jobs and far more low- and high-level jobs than two or three decades ago, primarily due to technological advancement. This column reviews recent research that finds little evidence in support of this conclusion. Though the composition of intermediate-level jobs has changed, their volume has probably not. Policy implications for specific groups of job seekers are discussed.

The ‘hollowing out’ thesis argues that intermediate-level jobs have been disappearing, and are replaced by a rise in low-level and in high-level jobs, and that this is primarily due to technology replacing routine jobs. That position, however, does not match what is seen in reality.

Two of the four points are generally agreed upon: the volume of high-level jobs has been increasing over time, and technology is reducing the volume of routine jobs (both low-pay and mid-pay). However, there appears to be little, if any, net reduction in mid-pay jobs, and it is not clear there has been an increase in low-pay ones. The mistake that is made is to assume that what you see looking forward, is what you get when you look at the current position, but the current position includes the effect of changes in relative wages and new jobs arising, while the historical view only takes into account changes in the number of existing jobs, holding relative pay constant.

The hollowing out thesis has had a great deal of attention in many countries including Britain and the United States, arising from the 2003 paper by Goos and Manning “Lousy and Lovely Jobs”.

While it is not correct in its main implication (that the labour market has been hollowed out), the hollowing-out analysis is nevertheless right in highlighting some of the significant changes in the labour market that have occurred.

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