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Technical Change and the Relative Demand for Skilled Labor
The United States in Historical Perspective
Lawrence F. Katz and Robert A. Margo*
1.1 Introduction
Skill-biased technical change has been a pervasive feature of the twentieth-century American economy (Goldin and Katz 2008). At the ground level, technical change is frequently embodied in new capital goods, whose price relative to output or labor becomes cheaper over time. As the relative price of capital declines, more capital per worker is used, and capital âdeepeningâ occurs. In the twentieth century, physical capital and skill have been shown to be relative complements so that capital deepening has increased the demand for skilled relative to unskilled labor (Griliches 1969). Technology-skill complementarity has also been widespread over the past century with new technologies from those associated with the electricity revolution in the early twentieth century to the computer revolution in the late twentieth century being relative complements with human capital (Goldin and Katz 1998; Autor, Katz, and Krueger 1998). Goldin and Katz (2008, 297, table 8.1), using educational attainment as a proxy for skill, show the growth in the demand for skilled labor greatly outpaced that for unskilled labor in every decade of the twentieth century, with the possible exception of the 1940s.1
The apparent pervasiveness of complementarities between capital and skilled labor in the twentieth century has naturally led economists and economic historians to ask whether such complementarity has been an inherent feature of technical change since the onset of modern economic growth in the United States, or whether it is a more recent phenomenon. Drawing almost entirely on evidence from manufacturing, the conventional wisdom is that technical change was predominantly âde-skillingâ in the nineteenth centuryâcapital and unskilled labor substituted for skilled labor with mechanization (Brown and Phillips 1986; Atack, Bateman, and Margo 2004).2 In manufacturing, de-skilling occurred as the factory system began to displace the artisanal shop as the United States began to industrialize in the 1820s, and it picked up pace as production increasingly mechanized with the adoption of steam power after 1850 (Goldin and Sokoloff 1982; Atack, Bateman, and Margo 2008). However, beginning in the late nineteenth century and continuing into the early twentieth century the familiar modern pattern of capital-skill complementarity emerged. This emergence, according to Goldin and Katz (1998), can be traced to the diffusion of electricity as a source of inanimate power and with the technological shift from traditional factories to continuous-process and batch production methods in many manufacturing industries. The conventional wisdom, in other words, suggests a discontinuity between the nineteenth and twentieth century in the impact of capital deepening on the relative demand for skilled labor.
In this chapter we revisit the issue of the historical evolution of capital-skill complementarity and with it, shifts over time in the relative demand for skilled labor. Our chapter makes three points. First, although de-skilling in the conventional sense did occur overall in nineteenth-century manufacturing, a more nuanced picture is that the occupation distribution âhollowed out.â By hollowing out we mean the share of middle-skill jobsâartisansâdeclined while the shares of high-skillâwhite-collar, so-called nonproduction workers and low-skill operatives and laborersâincreased. Second, unlike the pattern observed in manufacturing, de-skilling did not occur in the aggregate economy; rather, the aggregate shares of low-skill jobs decreased, middle-skill jobs remained steady, and high-skill jobs expanded from 1850 to the early twentieth century. It is incorrect, in other words, to infer the pattern of occupational change in the economy at large from that occurring in manufacturing. The pattern of monotonic skill upgrading in the aggregate economy continued through much of the twentieth century until the recent period of hollowing out and âpolarizationâ of labor demand since...
