Skill-Biased Technological Change

Skill-biased technological change occurs when new technology increases the productivity and relative demand for skilled workers more than for less-skilled workers. It changes labour demand by complementing some workers and substituting for particular tasks performed by others, rather than automatically eliminating entire occupations.

How the demand shift occurs

When technology complements skilled labour, it raises skilled workers' marginal productivity and shifts employers' relative demand towards them. If the supply of such workers does not rise correspondingly, the skill premium, the wage difference between skilled and less-skilled workers, can increase.

• Technology can create new tasks involving design, analysis, supervision and maintenance while automating existing tasks.
• The employment effect depends on whether the productivity and output expansion generated by technology outweighs the labour displaced through substitution.

Effects across skill and task groups

The effect is better understood through workers' task content than through educational labels alone.

• Workers performing abstract, problem-solving and technical tasks often benefit because technology acts as a complement to their capabilities.
• Workers performing predictable clerical, administrative or production tasks face greater substitution when those tasks can be codified and automated.
• Workers in non-routine manual or interpersonal services may be less directly substitutable, although technology may still alter their productivity, wages and working conditions.
• Automation concentrated in routine, middle-skill work can produce job polarisation, with employment growing relatively more at the high-skill and low-skill ends.

Why outcomes are not predetermined

Technological capability alone does not determine employment. The eventual distribution of jobs and wages also reflects skill supply, adoption costs, product demand, sectoral structure and labour-market institutions.

• Education, reskilling and on-the-job learning can enable workers to move into technology-complementary tasks.
• The same technology may complement one occupation while substituting for selected tasks within another.
• Measuring the effect requires occupational and task-level data; broad education or employment categories can conceal changes within jobs, especially in informal employment.

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