How Technology Has Affected Wages for the Last 200 Years

March 15, 2015 by Radha


Today’s great paradox is that we feel the impact of technology everywhere – in our cars, our phones, the supermarket, the doctor’s office – but not in our paychecks. We work differently, communicate with each other differently, create differently, and entertain ourselves differently, all thanks to new technology. Yet since the beginning of the personal computer revolution three decades ago, the median wage has remained stagnant.

Over the last two hundred years, technological advancements have been responsible for a ten-fold increase in wages. But some people claim that technology has now turned against us, permanently eliminating middle class jobs and portending a future of widening economic inequality. The remedy, they say, lies in policies to redistribute wealth.

But are we really at an historical turning point? No. In fact, the present is not so different than the past. Throughout history, major new technologies were initially accompanied by stagnant wages and rising inequality, too. This was true during the Industrial Revolution in the early nineteenth century and also during the wave of electrification that began at the end of the nineteenth century. However, after decades these patterns reversed; large numbers of ordinary workers eventually saw robust wage growth thanks to new technology.

Of course, circumstances are different today. Information technology automates the work of white-collar jobs and the pace of change is faster. But the key challenge facing the workforce is the same as in the past. Both then and now, in order to implement major new technologies, large numbers of people had to learn new skills and knowledge. This learning turned out to be surprisingly slow and difficult, yet it was the key to higher wages. Today’s workforce must overcome a similar hurdle before it can benefit from new technology.

Too often, when people think about technology, they only think about the initial invention. In the cartoon version, technology consists of inventions “designed by geniuses to be run by idiots.” Yet most major technologies develop over decades, as large numbers of people learn how to apply, adapt, and improve the initial invention. The initial power loom—one of the transformative technologies of the Industrial Revolution—automated weaving tasks, allowing a weaver to produce twice as much cloth per hour. But over the next century, weavers improved their skills and mechanics and managers made adaptations and improvements, generating a twenty-fold increase in output per hour. Most of the gains from this technology took a long time to realize, and involved the skills and knowledge of many people. Similarly slow progress was seen in steam engines, factory electrification, and petroleum refining. More recently, it took decades for computers to show up in the productivity statistics.

Because skills were so important during the Industrial Revolution, employers sometimes went to great lengths to build an intelligent workforce that could learn on the job. Lowell, Massachusetts, was the Silicon Valley of its day, and the textile mills of Lowell recruited bright young women by offering them something like a college experience: the mill owners funded schools, lecture series, a library, and cultural events. One mill girl, Lucy Larcom, studied German and botany, and published poems in the mill girls’ literary magazine during the 1830s and 1840s; she came to the attention of John Greenleaf Whittier, who became her mentor.

These measures by the mill owners might seem surprising because even today factory workers with little education are often considered “unskilled.” Although the early mill workers had little formal schooling, they learned skills on the job, skills that were critical to keeping the strange, new, expensive machines running efficiently. Their skills were narrow compared to those of traditional craftsmen, but valuable nonetheless. These skills eventually allowed factory weavers to earn far more than earlier artisan weavers; steel workers with narrow skills earned more than craft ironworkers with broad skills; typographers on the new Linotype machines earned more than the hand compositors they replaced. Moreover, employers paid these workers well at a time when unions had little power. Technical skills learned through experience allowed blue-collar workers with little education to enter the middle class.

However, this process took a long time. Many workers could not teach themselves on the job. In the early textile mills, most left after just months on the job, finding the work too hard to learn or too disagreeable. Nor could these skills be learned in school. The technology was too uncertain, changing too rapidly for schools to keep up. The first textile schools were not established until after the Civil War. More important, workers’ incentives to learn the new skills were weak because the labor market was initially quite limited. During the 1830s, the textile mills mainly hired workers who had no prior experience. Experience acquired at one mill was not necessarily valuable at another because mills used different versions of the technology and organized work in different ways. But without a robust labor market, textile workers could not look forward to a long career at different workplaces and so they had little reason to invest in learning. After the Civil War, the market for skilled textile workers became very active. Only then did wages begin to grow vigorously. Weavers’ hourly pay in Lowell changed little between 1830 and 1860, but by 1910 it had tripled. It took decades for the training institutions, business models, and labor markets to emerge that unlocked the benefits of technology for ordinary workers.

Of course, technology and skills were not the only factors that helped boost wages. Growing capital investments made the workers more productive, and growing opportunities for women workers helped increase their pay. Unions also played a role, especially during the 20th century. But consider the magnitude of these changes: studies have shown that unionized workers earn about 15% more than comparable nonunionized workers. That’s a meaningful difference, but it looks small compared to the weavers’ three-fold increase in wages. Ultimately, the biggest factor in that wage growth was technology, the productivity growth it unlocked, and the development of mature labor markets that valued the weavers’ skills.

Thanks to these developments, generations of less educated manufacturing workers have been able to earn good pay. Now, however, automation and offshoring have eliminated many of those jobs for weavers and steelworkers and typographers; many of the old skills are obsolete. Nevertheless, new opportunities are emerging because technology creates jobs that demand new skills. However, the transition to new jobs is slow and difficult.

For example, computer publishing replaced typographers with graphic designers. Yet today’s graphic designers face a challenge acquiring the latest skills, not unlike the challenge faced by antebellum textile workers. Standards, business models, and technology keep changing, requiring continuous learning. First designers had to learn desktop publishing, then web publishing, and now, with the growth of smartphones, mobile design. The most able designers are able to teach themselves, but the average designer cannot. Nor have the schools kept up; many still focusing on print design. The top ten percent of designers have seen their wages grow strongly along with their new skills, but the median designer wage has been stagnant for three decades.

Since the 1980s, a similar gap has widened within many jobs. In occupations where the majority of workers use computers, the wages of the top ten percent have been growing, but median wages have seen little growth. Even among scientific, engineering, and computer occupations, the median wage has grown slowly, but those with specialized technical skills earn a growing bounty from technology. And the difficulty of acquiring the new skills affects employers as well. In survey after survey, over a third of managers report difficulty finding employees who have needed skills; business groups regularly decry the “skills gap.” In short, firms have plenty of demand for workers with critical technical skills, they are willing to pay high wages for workers who have them, but too few workers do.

Thus the problem isn’t that technology has eliminated the need for mid-skill workers overall. New opportunities are there, but grasping them is difficult. Overcoming that obstacle will take time as well as policies that promote technical training, certify skills learned through experience, encourage employee mobility, and foster robust labor markets.

Perhaps in the future, smart machines will drastically eliminate opportunities for mid-skill work, but that is not what is behind today’s stagnant wages. Technology has not turned against us; instead, technology challenges us to develop new capabilities. If we meet that challenge, then large numbers of ordinary people will benefit substantially from new technology, just as they have for the past two hundred years.

By James Bessen

Harvard Business Review

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