DP20290 The Complexity Premium
We introduce a task-based framework to describe production in which certain tasks are too complex for many workers to perform. In such an environment, the relationship between the wages of workers may significantly differ from their relative productivities: Marginally more skilled workers may be scarce and hence obtain a large additional wage premium on top of the skill premium, which we call complexity premium. We apply our framework to explain employment and wage polarization and estimate model parameters for the U.S. labor market between 2001 and 2019. Besides a rising skill level and skill premium, we find that complexity of tasks increases and employees mastering higher complexity levels earn a significant complexity premium which explains up to 43 percent of their wages. Finally, we find that artificial intelligence may either aggravate or reduce wage inequality in the model, depending on its skill level and its cost.
