Overall wage inequality and educational wage differentials have expanded substantially in the United States over the past two decades.
Overall wage inequality and educational wage differentials have expanded substantially in the United States over the past two decades. This widening of the wage structure has coincided with the rapid computerization of the work place. Thus, it is not surprising that many labor market analysts have tried to draw a causal connection between rising earnings inequality and increases in growth rate of the relative demand for more-skilled workers driven by skill-biased technological changes associated with the computer revolution (e.g., Bound and Johnson 1992; Krueger 1993). Such inferences follow a venerable and fruitful tradition extending back to Paul Douglas (1926) and Jan Tinbergen (1975) of viewing the evolution of the wage structure (at least partially) as depending on a race between technological development and educational advance. This hypothesis implies that improvements in access to post-secondary schooling and appropriate skills training may be necessary to allow the productivity benefits of the new technologies associated with the digital economy to be more widely shared.
Two key pieces of evidence are often cited as being strongly suggestive of an important role of skill-biased ( unskilled labor saving) technological change in the recent rise in U.S. wage inequality. The first is that the relative employment of more-educated workers and non-production workers has increased rapidly within detailed industries and within establishments in the United States during the 1980s and 1990s, despite the sharp rise in the relative wages of these groups (Autor, Katz, and Krueger 1998; Lawrence and Slaughter 1993; Dunne, Haltiwanger, and Troske 1996). This pattern indicates strong within-industry demand shifts favoring the more skilled. Similar patterns of within-industry increased in the proportion of “skilled” workers are apparent in most other advanced nations (Berman, Bound, and Machin 1998; Machin and Van Reenen 1998). Skill-biased technological change (broadly interpreted to be associated with both new production technologies and organizational innovations) is a natural possibility for unexplained within-sector growth in the demand for skill.
The second more direct evidence from both econometric and case-study research is that the relative utilization of more-skilled workers is strongly positively correlated with capital intensity and the introduction of new technologies both across industries and across establishment within industries (Bartel and Lichtenberg 1987; Doms, Dunne, and Troske 1997; Levy and Murnane 1996). These findings strongly suggest that physical capital and new technologies are relative complements with more-skilled workers. Such evidence is certainly consistent with the view that the spread of computer technologies may have contributed to rapid increases in the demand for skill in recent decades.
Nevertheless, similar evidence of capital-skill complementarity and rapid skill-biased technological advance is apparent throughout the twentieth century even in periods of stable or narrowing educational and occupational wage differentials. For example, Goldin and Katz (1998) find that capital-deepening, the diffusion of technologies using purchased electricity, and the introduction of continuous-process and batch production methods in manufacturing greatly increased the relative demand for white collar workers and more-educated production workers from 1909 to 1929, but wage differentials by skill actually narrowed during this period. Goldin and Katz (1995, 1999) present evidence indicating that the rapid increase in the supply of skills arising from the high school movement prevented a rise in wage inequality during the skill-biased technological revolutions associated with the electrification of the work place.
Overall wage inequality and educational wage differentials have expanded substantially in the United States over the past two decades. This widening of the wage structure has coincided with the rapid computerization of the work place. Thus, it is not surprising that many labor market analysts have tried to draw a causal connection between rising earnings inequality and increases in growth rate of the relative demand for more-skilled workers driven by skill-biased technological changes associated with the computer revolution (e.g., Bound and Johnson 1992; Krueger 1993). Such inferences follow a venerable and fruitful tradition extending back to Paul Douglas (1926) and Jan Tinbergen (1975) of viewing the evolution of the wage structure (at least partially) as depending on a race between technological development and educational advance. This hypothesis implies that improvements in access to post-secondary schooling and appropriate skills training may be necessary to allow the productivity benefits of the new technologies associated with the digital economy to be more widely shared.
Two key pieces of evidence are often cited as being strongly suggestive of an important role of skill-biased ( unskilled labor saving) technological change in the recent rise in U.S. wage inequality. The first is that the relative employment of more-educated workers and non-production workers has increased rapidly within detailed industries and within establishments in the United States during the 1980s and 1990s, despite the sharp rise in the relative wages of these groups (Autor, Katz, and Krueger 1998; Lawrence and Slaughter 1993; Dunne, Haltiwanger, and Troske 1996). This pattern indicates strong within-industry demand shifts favoring the more skilled. Similar patterns of within-industry increased in the proportion of “skilled” workers are apparent in most other advanced nations (Berman, Bound, and Machin 1998; Machin and Van Reenen 1998). Skill-biased technological change (broadly interpreted to be associated with both new production technologies and organizational innovations) is a natural possibility for unexplained within-sector growth in the demand for skill.
The second more direct evidence from both econometric and case-study research is that the relative utilization of more-skilled workers is strongly positively correlated with capital intensity and the introduction of new technologies both across industries and across establishment within industries (Bartel and Lichtenberg 1987; Doms, Dunne, and Troske 1997; Levy and Murnane 1996). These findings strongly suggest that physical capital and new technologies are relative complements with more-skilled workers. Such evidence is certainly consistent with the view that the spread of computer technologies may have contributed to rapid increases in the demand for skill in recent decades.
Nevertheless, similar evidence of capital-skill complementarity and rapid skill-biased technological advance is apparent throughout the twentieth century even in periods of stable or narrowing educational and occupational wage differentials. For example, Goldin and Katz (1998) find that capital-deepening, the diffusion of technologies using purchased electricity, and the introduction of continuous-process and batch production methods in manufacturing greatly increased the relative demand for white collar workers and more-educated production workers from 1909 to 1929, but wage differentials by skill actually narrowed during this period. Goldin and Katz (1995, 1999) present evidence indicating that the rapid increase in the supply of skills arising from the high school movement prevented a rise in wage inequality during the skill-biased technological revolutions associated with the electrification of the work place.
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