TECHNOLOGY AT WORK

February 2015
Citi GPS: Global Perspectives & Solutions
17
Increasing demand for low-skilled workers
plus a surge in productivity helped boost
employment and wage growth over the
course of the 19 th century
The shift in demand for higher-skilled
workers can be traced to the switch to
electricity
The shift to mass production was also
helped by the transportation revolution and
led to the advent of multinational
corporations
The combination of increasing demand for low-skilled workers, and the surge in
productivity following the transition to the factory system, helped boost employment
and wage growth over the course of the 19th century, benefiting ordinary people as
producers. According to some estimates, real wages nearly doubled between 1820
and 1850. 32
A crucial feature of technological change in the 19 th century was that it benefited
ordinary people both as producers and consumers. While the factory system
provided vast employment opportunities for unskilled workers, it also enabled Ford
to manufacture the Model-T at a sufficiently low price for it to reach the mass
market. It was these two processes of growing wages and falling prices of
consumer goods that created the modern middle class. Some economic historians
such as Gregory Clark have even argued that ordinary workers were the greatest
beneficiaries of the Industrial Revolution.
Electrification and the Demand for Skills
The idea that skilled workers have been the main beneficiaries of technological
progress is largely a 20th century phenomenon. This shift in demand for skills can
be traced to the switch to electricity and the removal of the steam engine, leading to
a complete reorganisation of production. 33 Crucially, the restructuring of the factory
that followed significantly reduced the demand for maintenance workers as well as
unskilled labourers who had previously carried unfinished goods and tools.
Furthermore, the shift to continuous-process and batch production methods
reduced the demand for unskilled workers in many assembly tasks. In short, while
factory assembly lines had required vast amounts of human work, electrification
allowed many stages in production to be automated. This, in turn, increased the
demand for relatively skilled workers to operate the machinery.
The transport revolution played an important role in incentivizing the shift to mass
production, as it lowered the cost of shipping goods both domestically and
internationally. 34 Markets for artisan goods, that had previously been local, now
became subject to increased competition, forcing companies to raise productivity
through mechanisation in order to maintain their competitive edge. With the
emergence of the multinational corporation, management tasks became more
complex, increasing the demand for managerial and clerking workers.
Crucially, this transformation did not lead to the type of technological unemployment
John Maynard Keynes predicted in the 1930s. Workers adapted by making their
skills complementary to the arrival of new technologies. In the United States, for
example, the high school movement was essential to the transformation of the
corporation, as the office entered a wave of mechanisation, with typewriters,
dictaphones, calculators, and address machines. An important feature of these
technologies is that while they reduced the cost of information processing, they
increased the demand for high school-educated workers. Indeed, since
electrification, the story of the 20 th century has been what Claudia Goldin and
Lawrence Katz have referred to as “the race between technology and education.”
32 Lindert and Williamson (1983)
33 Gray (2013)
34 Atack et al. (2008b)
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