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People and Machines: A Look at the Evolving Relationship Between Capital and Skill In Manufacturing 1860-1930 Using Immigration Shocks

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  • Jeanne Lafortune
  • José Tessada
  • Ethan Lewis

Abstract

This paper estimates the elasticity of substitution between capital and skill using variation across U.S. counties in immigration-induced skill mix changes between 1860 and 1930. We find that capital began as a q-complement for skilled and unskilled workers, and then dramatically increased its relative complementary with skilled workers around 1890. Simulations of a parametric production function calibrated to our estimates imply the level of capital-skill complementarity after 1890 likely allowed the U.S. economy to absorb the large wave of less-skilled immigration with a modest decline in less-skilled relative wages. This would not have been possible under the older production technology.

Suggested Citation

  • Jeanne Lafortune & José Tessada & Ethan Lewis, 2015. "People and Machines: A Look at the Evolving Relationship Between Capital and Skill In Manufacturing 1860-1930 Using Immigration Shocks," NBER Working Papers 21435, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:21435
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    References listed on IDEAS

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    1. Harry Jerome, 1934. "Changes in Mechanization: Non-Manufacturing Industries," NBER Chapters,in: Mechanization in Industry, pages 120-178 National Bureau of Economic Research, Inc.
    2. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    3. Jeanne Lafortune & José Tessada, 2012. "Smooth(er) Landing? The Dynamic Role of Networks in the Location and Occupational Choice of Immigrants," Working Papers ClioLab 14, EH Clio Lab. Instituto de Economía. Pontificia Universidad Católica de Chile.
    4. James, John A. & Skinner, Jonathan S., 1985. "The Resolution of the Labor-Scarcity Paradox," The Journal of Economic History, Cambridge University Press, vol. 45(03), pages 513-540, September.
    5. Harry Jerome, 1934. "Changes in Mechanization in Selected Manufacturing Industries," NBER Chapters,in: Mechanization in Industry, pages 55-119 National Bureau of Economic Research, Inc.
    6. Paul Beaudry & David A. Green, 2003. "Wages and Employment in the United States and Germany: What Explains the Differences?," American Economic Review, American Economic Association, vol. 93(3), pages 573-602, June.
    7. Abdurrahman Aydemir & George J. Borjas, 2011. "Attenuation Bias in Measuring the Wage Impact of Immigration," Journal of Labor Economics, University of Chicago Press, vol. 29(1), pages 69-113, January.
    8. Lawrence F. Katz & Robert A. Margo, 2014. "Technical Change and the Relative Demand for Skilled Labor: The United States in Historical Perspective," NBER Chapters,in: Human Capital in History: The American Record, pages 15-57 National Bureau of Economic Research, Inc.
    9. Card, David, 2001. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 22-64, January.
    10. Gray, Rowena, 2013. "Taking technology to task: The skill content of technological change in early twentieth century United States," Explorations in Economic History, Elsevier, vol. 50(3), pages 351-367.
    11. Harry Jerome, 1934. "Mechanization in Industry," NBER Books, National Bureau of Economic Research, Inc, number jero34-1, September.
    12. Wooldridge, Jeffrey M., 1997. "On two stage least squares estimation of the average treatment effect in a random coefficient model," Economics Letters, Elsevier, vol. 56(2), pages 129-133, October.
    13. Daniel S. Hamermesh, 1993. "Labor Demand and the Source of Adjustment Costs," NBER Working Papers 4394, National Bureau of Economic Research, Inc.
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    Cited by:

    1. repec:nbr:nberch:14102 is not listed on IDEAS
    2. Lewis, Ethan & Peri, Giovanni, 2015. "Immigration and the Economy of Cities and Regions," Handbook of Regional and Urban Economics, Elsevier.
    3. Morales, Juan S., 2018. "The impact of internal displacement on destination communities: Evidence from the Colombian conflict," Journal of Development Economics, Elsevier, vol. 131(C), pages 132-150.

    More about this item

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • N61 - Economic History - - Manufacturing and Construction - - - U.S.; Canada: Pre-1913
    • 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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