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How Technology Has Affected Wages for the Last 200 Years

2015-04-30 12:01:54

James Bessen

April 29, 2015

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

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.

This article is adapted from the author s recently published book Learning by

Doing: The Real Connection Between Innovation, Wages, and Wealth.

James Bessen, an economist at Boston University School of Law, is the author of

a book about technology and jobs, Learning by Doing: The Real Connection

Between Innovation, Wages, and Wealth. You can follow him on Twitter.