Electrification, skills and manufacturing

Taking Technology to Task: The Skill Content of Technological Change in Early Twentieth Century United States

By Rowena Gray (rgray@essex.ac.uk)

URL: http://d.repec.org/n?u=RePEc:hes:wpaper:0009&r=his

Abstract

This paper presents a new picture of the labor market effects of technological change in pre-WWII United States. I show that, similar to the recent computerization episode, the electrification of the manufacturing sector led to a “hollowing out” of the skill distribution whereby workers in the middle of the distribution lost out to those at the extremes. To conduct this analysis, a new dataset detailing the task composition of occupations in the United States for the period 1880-1940 was constructed using information about the task content of over 4,000 occupations from the Dictionary of Occupational Titles (1949). This unique data was used to measure the skill content of electrification in U.S. manufacturing. OLS estimates show that electrification increased the demand for clerical, numerical, planning and people skills relative to manual skills while simultaneously reducing relative demand for the dexterity-intensive jobs which comprised the middle of the skill distribution. Thus, early twentieth century technological change was unskill-biased for blue collar tasks but skill-biased on aggregate. These results are in line with the downward trend in wage differentials within U.S. manufacturing up to 1950. To overcome any threat to the exogeneity of the electricity measure, due for example to endogenous technological change, 2 instrumental variable strategies were developed. The first uses cross-state differences in the timing of adoption of state-level utility regulation while the second exploits differences in state-level geography that encouraged the development of hydro-power generation and thus made electricity cheaper. The results from these regressions support the main conclusions of the paper.

Review by: Chris Colvin

What was the effect of electrification on the skill content of manufacturing? Rowena Gray (University of Essex) answers this important question for the case of the US using a new data source and an instrumental variables approach. Gray uses the Dictionary of Occupational Titles, a 1949 publication which describes occupations, to classify the skill content of manufacturing jobs post-electrification. Matching these descriptions with occupational data from decennial censuses and information on plant electrification from the US census of manufacturing, Gray is able to track changes in the skill content of manufacturing due to electrification for the period 1880 to 1940.

Using regression analysis, Gray shows that the most skilled blue-collar workers were displaced by machinery, i.e. electrification resulted in unskilled-biased technical change. She also shows that electrification simultaneously necessitated more clerical and supervisory work, a skill-biased change. This bimodal distributional finding is further strengthened in her robustness exercises, which instrument for electrification using cross-state differences in the timing of the adoption of utility regulation and differences in geography necessary for hydroelectric power generation. This instrumental variable approach is needed to address the concern that electrification is endogenous to the pre-existing skill levels present in state’s labour market; various skillsets may have attracted electrification, rather than the other way around.

Gray’s paper is important because previous studies have been unable to quantify the effects of electrification on the skill content of manufacturing, or at least have been unable to demonstrate that electrification has a distributional effect, that it was simultaneously unskilled- and skilled-biased. An alternative approach to instrumental variables which Gray could have employed to determine the direction of causality would have been to complement her regression analysis with detailed business histories, a method suggested recently by Randall Morck and Bernard Yeung. Where her research potentially suffers is her reliance on post-electrification occupational descriptions; her assumption that the tasks required to carry out particular jobs before and after electrification were identical may be unrealistic. Gray’s future research agenda includes using her individual-level dataset to track cohorts across censuses in order to uncover the winners and losers of electrification. Perhaps another task, which could strengthen the results of the paper discussed here, would be to repeat her analysis using a source that describes the task content of jobs pre-electrification.

Gray’s paper is part of the new working paper series of the European Historical Economics Society. The series, edited by Nikolaus Wolf (Humboldt-Universität zu Berlin), offers the society’s members the chance to disseminate their work ahead of journal submission. Other recent papers in this series include one by Geraldine David and Kim Oosterlinck (Université Libre de Bruxelles) on the effects of the War on the Belgian art market, and a paper by Giovanni Federico (EUI and University of Pisa) on market integration across oceans. This series will surely prove to be an important outlet for work-in-progress by historical economists in future; a paper disseminated in this way could be an important signal of quality versus dissemination through the working paper series of individual institutions.

Italy and the World Economy: celebrating Italy’s 150th birthday with some data crunching

The Well-Being of Italians: A Comparative Historical Approach

by Andrea Brandolini (andrea.brandolini@bancaditalia.it) and Giovanni Vecchi (giovanni.vecchi@uniroma2.it)

URL: http://d.repec.org/n?u=RePEc:bdi:workqs:qse_19&r=his

Abstract

The paper describes the evolution of the well-being of the Italians during the 150 years since the country’s unification. The progress in material standard of living was substantial, with GDP per capita growing 13 times between 1861 and 2010 and hours of work (and hence effort) falling considerably, but was roughly in line with that experienced by most other European countries. By relying on a novel database on household budgets, the paper shows that economic growth was accompanied by a long-run reduction of inequality that appears however to have been reversed in the last two decades. Progress was not limited to the economic domain: educational attainment improved considerably, although less than in other countries; on the other hand, the increase in life expectancy was spectacular and brought Italians to lead the international ranking.”

“Comparative Advantages in Italy: A Long-run Perspective”

by Giovanni Federico (giovanni.federico@eui.eu) and Nikolaus Wolf  (nikolaus.wolf@wiwi.hu-berlin.de)

URL: http://d.repec.org/n?u=RePEc:bdi:workqs:qse_9&r=his

Abstract

The history of Italy since her unification in 1861 reflects the two-way relationship between foreign trade and economic development. Its growth was accompanied by a dramatic increase in the country’s integration with European and global commodity markets: foreign trade in the long run grew on average faster than the overall economy. Behind the dynamics of aggregate trade, Italy’s comparative advantage changed fundamentally over the last 150 years. The composition of trade, in terms of both commodities imported and exported and in terms of trading partners, developed from a high concentration of a few trading partners and a handful of rather simple commodities into a wide diversification of trading partners and more sophisticated commodities. In this chapter we use a new long-term database on Italian foreign trade at a high level of disaggregation to document and analyze these changes. We will conclude with an assessment of Italy’s prospects from a historical perspective.”

Review by: Anna Missiaia

In 2011 the Bank of Italy promoted an extensive research project to celebrate the 150th anniversary of the Unification of the country. The project focused on the various aspects of the economic history of Italy since 1861. The goal was to cast light on the economic and social development of unified Italy and on Italy’s position in the world today. The project involved an impressive number of prominent scholars (mostly historians, economic historians and economists) both Italian and international.  The results of the research project were presented at the international conference held at the Bank of Italy in Rome from 12 to 15 October 2011. The project included twenty studies, most of these coauthored by Italian and non-Italian scholars (all of which were distributed by nep-his on 2011 12 19). The topics analyzed included: productivity and wealth, technology, production specialization, business internationalization, human capital, social capital, trade, migration, legal system, regional divergence, financial system and public finance, political economy. All the works presented adopt a long run perspective, embracing all the 150 years of unitary history of Italy. One of the most interesting results of this project was the revision of Italian historical statistics and the release of new historical series of the main national accounts aggregates. All the working papers presented at the conference are available from the website of the Bank of Italy.

Here we propose to comment on two contributions that were presented at the conference. The first one is “ The Well-Being of Italians: A Comparative Historical Approach” by Andrea Brandolini and Giovanni Vecchi which is concerned with measures of standard of living of the Italian population over 150 years. The second paper is “Comparative Advantages in Italy: A Long-run Perspective” by Giovanni Federico and Nikolaus Wolf which is concerned with the relationship between foreign trade and economic development in Italy.

Brandolini and Vecchi propose an overview of measures of standard of living that go beyond GDP per capita, including new estimates made available within the project. First of all, they show new estimates of income per capita recently released by Banca d’Italia, ISTAT and University of Rome Tor Vergata. They then compare these with the updated international series by Maddison. The result is that Italy lagged behind until WWII, after which the big catch up took place resulting in an overall increase by a factor of 13. The two scholars then propose a measure that takes account of the economies of scales in consumption: GDP per equivalent person. This measure takes into account of the household size, allowing to consider pooling benefits. The difference between the two series are large at the beginning of the period and shirk over time because of the reduction of household size. On worked time, third measure of well-being proposed here, they find that the number of hours worked decreased dramatically. The most interesting result is that child work decreased as well during industrialization, which is a result that makes Italy different from other industrializing countries like Belgium, the US and the UK. The next step is to look at inequality over the 150 years. For this purpose, they use the data available from the Italian Household Budget Database. As for inequality, the experience of Italy seems to be different from other countries such as the US and the UK: inequality, measured through the Gini and the Atkinson indices, decreased until the 1980s, with a resumption in the last 30 years. The last measures proposed are life expectancy, anthropometric measures and the Human Development Index (HDI). Life expectancy rose dramatically over the 150 years at a higher pace compared to that of other industrializing countries. This was due to a great improvement of health conditions. Heights appear to be negatively affected by industrialization, showing once again the difference between Italy and the others. The performance of the HDI is quite poor, mostly because of the slow increase in school enrollment rates. Concluding, the main features of the development of well-being of Italians between 1861 and today is an increase in GDP in line with that of other Western countries and a decreasing inequality and longevity/health in spite of industrialization.

The second paper reviewed here deals with assessment of the evolution of the comparative advantage of Italy in international trade. The common wisdom at the time of unification was that Italy should have focused on exporting primary rather than manufacturing goods. Federico and Wolf use a new dataset on Italian trade to show how comparative advantage of Italy changed over the 150 years. The dataset as been constructed within a project funded by Banca d’Italia and provides systematic information on Italian trade from 1862 onwards. The authors calculate comparative advantages through the index of Revealed Comparative Advantage for each type of product. Intuitively, for each of these they measure the difference between the product’s normalized net balance and the total normalized net balance. If the index is positive, there is a comparative advantage in that type of export. The result is a shift in the comparative advantage of Italy from primary goods to manufacturing around the 1920s. This result is interesting as it shows that Italy achieved this shift earlier than previously thought and it managed to reverse the expectations at the time of Unification. Federico and Wolf also comment on the change of trading partners that Italy experienced over the period, starting with a 90% of exports towards Europe and ending with a much higher degree of openness towards the rest of the world.

In conclusion, the research project promoted by the Bank of Italy for the 150^th anniversary of Unification was a very fruitful opportunity for economic historians. Existing series have been revised and expanded, giving great opportunities for new research in a number of related fields. The two working papers reviewed here are only two examples of the use of these data.