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The Virtuous Cycle Between Skills and Technology

Author

Listed:
  • Sascha O. Becker
  • Christian Dustmann
  • Hyejin Ku

Abstract

We examine the long-term labor market impact of the steam engine, an early general-purpose technology, by linking newly digitized 19th-century records from Prussia to modern German labor market data (1975-2019). Regions with a higher concentration of steam engines per worker in 1875 exhibit higher wages today, primarily because of higher firm productivity and a more skilled workforce. These regions also exhibited greater skill diversity in 1939 and generated more innovations between 1877 and 1918, a pattern that persists to this day. Our findings highlight a lasting, self-reinforcing cycle between technology and skills, set in motion by the steam engine, offering a novel explanation for regional income disparities and their persistence.

Suggested Citation

  • Sascha O. Becker & Christian Dustmann & Hyejin Ku, 2026. "The Virtuous Cycle Between Skills and Technology," RFBerlin Discussion Paper Series 26013, ROCKWOOL Foundation Berlin (RFBerlin).
    • Handle: RePEc:crm:wpaper:26013
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    Keywords

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    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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