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Specialization and the skill premium in the 20th century

  • Matthew F. Mitchell

The skill premium fell substantially in the first part of the 20th century, and then rose at the end of the century. I argue that these changes are connected to the organization of production. When production is organized into large plants, jobs become routinized, favoring less skilled workers. Building on the notion that numerically controlled machines made capital more “flexible” at the end of the century, the model allows for changes in the ability of capital to do a wide variety of tasks. When calibrated to data on the distribution of plant sizes, the model can account for between half and two-thirds of the movement in the skill premium over the century. It is also in accord with a variety of industry level evidence.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 290.

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Date of creation: 2001
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Handle: RePEc:fip:fedmsr:290
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  1. Dunne, Timothy & Foster, Lucia & Haltiwanger, John C. & Troske, Kenneth, 2002. "Wage and Productivity Dispersion in U.S. Manufacturing: The Role of Computer Investment," IZA Discussion Papers 563, Institute for the Study of Labor (IZA).
  2. Gort, M. & Greenwood, J. & Rupert, P., 1998. "Measuring the Rate of Technological Progress in Structures," RCER Working Papers 457, University of Rochester - Center for Economic Research (RCER).
  3. Markus Mobius & Raphael Schoenle, 2006. "The Evolution of Work," NBER Working Papers 12694, National Bureau of Economic Research, Inc.
  4. Ellen R. McGrattan & Edward C. Prescott, 2000. "Is the stock market overvalued?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 20-40.
  5. Per Krusell & Lee E. Ohanian & Jose-Victor Rios-Rull & Giovanni L. Violante, 1997. "Capital-skill complementarity and inequality: a macroeconomic analysis," Staff Report 239, Federal Reserve Bank of Minneapolis.
  6. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
  7. Goldin, Claudia D. & Katz, Lawrence F., 1998. "The Origins of Technology-Skill Complementarity," Scholarly Articles 27867130, Harvard University Department of Economics.
  8. Ingram, Beth F. & Neumann, George R., 2006. "The returns to skill," Labour Economics, Elsevier, vol. 13(1), pages 35-59, February.
  9. Acemoglu, D., 1997. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," Working papers 97-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
  11. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
  12. David Thesmar & Mathias Thoenig, 2000. "Creative Destruction and Firm Organization Choice," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00485579, HAL.
  13. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-28, June.
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