Macroeconomics - Julieta Caunedo (Cornell)

Title: Occupational exposure to capital-embodied technical change

Abstract: Much of technological progress is embodied in capital and realized through the availability
of new, more efficient, capital goods. How does capital-embodied technical change (CETC)
impact the labor market? We study workers’ exposure to CETC at the occupation level by
unpacking the cross-price elasticity of occupational labor demand. To do so, we construct a
novel dataset of the stocks and prices of different types of capital used by workers in each
occupation. Our dataset yields the first available occupational estimates of CETC and of
the elasticity of substitution between capital and labor. CETC varies substantially across
occupations, but it is the heterogeneity in the elasticity of substitution which fuels differences
in workers’ exposure and ultimately sets the direction of the labor reallocation triggered by
CETC. We evaluate the impact of CETC in a general equilibrium model of endogenous sort-
ing of workers across occupations of different CETC and complementarity between capital
and labor. CETC explains 91% of labor reallocation in the US between 1982 and 2015: it
is responsible for virtually all of the gains in employment in high-skill occupations, and for
74% of the employment losses in middle-skill occupations. A forecasting exercise for the
US economy in 2005 suggests that occupational disparities in the pace of CETC over the
previous 10 years are a strong predictor of employment flows in these occupations over the
subsequent 10 years.

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