Goldman Sachs research finds that technology-induced unemployment causes persistent wage losses

Investing.com – According to a study and analysis by Goldman Sachs on four decades of labor market data at the individual level, workers who become unemployed due to technological progress face long-term income losses and a more difficult transition back into reemployment.

The study tracked more than 20k individuals born in the 1950s-60s and the 1980s through a national longitudinal survey, identifying the occupations exposed to technological shocks in each decade since 1980.

Goldman Sachs found that workers who became unemployed from occupations exposed to technological shocks take about one extra month to find new jobs, compared with workers unemployed from more stable occupations. After reemployment, these workers suffer actual income losses of more than 3%, while the income loss for workers from stable occupations is negligible.

The study identifies occupational downgrading as the key mechanism driving these outcomes. Workers who experience technological unemployment move more frequently into routine jobs that require less analytical and interpersonal skills, because the technological changes that eliminate their roles also diminish the value of their existing skills.

Within the decade after unemployment, the growth in real income for workers who were technologically unemployed is nearly 10 percentage points lower than that of workers who were never unemployed, and 5 percentage points lower than that of other unemployed workers. Their likelihood of experiencing unemployment again remains consistently higher.

The impact is not limited to wages. Workers who are unemployed early in their careers experience slower wealth accumulation, mainly through delayed homeownership and delayed family formation.

The impact varies by worker demographics. The cumulative real income loss among younger, college-educated, and urban workers is only half that of other workers who were technologically unemployed. Workers with shorter tenure at the time of unemployment also perform better, which may be due to skills being more transferable.

Retraining programs help buffer the effects of unemployment. Workers who participate in such programs experience smaller labor market losses because retraining facilitates the transition to jobs that require more analytical skills—skills that complement information and communications technology.

Economic downturns amplify the costs of unemployment. Firms cut routine jobs disproportionately during periods of economic weakness, widening the gap for technologically unemployed workers by about three additional weeks of unemployment time, and increasing both the subsequent probability of unemployment and the probability of exiting the labor force by 5 percentage points each.

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