Abstract
Why do regions with growing populations in the United States suffer from rising wage inequality? This paper provides a novel explanation by showing the differential effects of directed technological change on worker mobility, employment and wages between local labour markets. The identification strategy is twofold: first, I construct a novel measure of cognitive-biased technological change using detailed and time-varying occupation data. Second, I use an industry shift-share design to estimate the causal effects of technology shocks on the labour market. The results show that low-skilled and high-skilled working-age populations increase in local labour markets with higher exposure to cognitive-biased technological change. Despite the labour-augmenting effects on low-skilled workers, their relative wages and employment shares decline in more exposed labour markets while the college wage premium increases. The crowding-out of low-skilled workers and the rise in the college wage premium are most pronounced within non-routine cognitive occupations.