Technological Change and Labor's Relative Share: The Mechanization of U.S. Cotton Production

Prior to World War II, labor's share in the U.S. manufacturing and agricultural sectors was relatively constant. Keynes called this “a bit of a miracle.†Several studies have shown that labor's share in the U.S. manufacturing sector has increased in the post-war period. The opposite appears to have been the case for U.S. agriculture. Two studies indicate that labor's relative share in the U.S. agricultural sector has declined in the post-war period. There has been a substantial substitution of capital for labor in both the manufacturing and agricultural sectors in the post-war period. The secular increase in the wage-rental ratio has encouraged substitution of capital for labor. However, while this argument alone might explain the observed decline in labor's share in the agricultural sector, it does not explain what has occurred in the manufacturing sector. Moreover, this argument excludes another important characteristic of both sectors in the post-war period: technological change.