The Future of Employment, Wages, and Technological Change
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The Future of Employment, Wages,
and Technological Change
MICHAEL J. HANDEL
Abstract
The United States and other advanced economies enjoyed a remarkable period of sustained growth and broadly-shared prosperity from the late 1940s to the early 1970s.
After a series of crises from the mid-1970s to mid-1980s the character of jobs and the
structure of earnings changed markedly but the causes continue to be debated. Most
workers’ inflation-adjusted wages have stagnated since the early 1980s, employment
security has fallen, and inequality has grown. One set of explanations emphasizes
structural and institutional forces, such as employment shifts from manufacturing to
services, deunionization, import competition, declining value of the minimum wage,
macroeconomic shocks, and changing wage norms. Others stress the interplay of the
supply of and demand for human capital, citing rising returns to education and skills,
which they attribute to the spread of computer technology. The debate has significant
implications for understanding the likely course of future labor market trends.
INTRODUCTION
The first decades following World War II are now remembered as the Golden
Age of capitalism. Following the hardships of the depression and war years,
pent-up demand from the war years, baby booms, and foreign assistance
and postwar reconstruction outside North America contributed to a burst
of economic growth in most Western countries and Japan. More than two
decades of unprecedented economic growth, productivity improvement,
high employment, low inflation, and rising incomes delivered relative affluence to previously excluded groups. In most countries, unions, relatively
progressive taxes, greater social spending, and various forms of labor and
economic regulation were now accepted features of the economic landscape
to varying degrees. In contrast, international trade, foreign exchange markets, capital mobility, and immigration were generally more restricted than
in the pre-war period. Large, bureaucratic corporations predominated over
both small, proprietary firms and large firms run by tycoon-founders in
the United States and to a lesser degree elsewhere. Product markets were
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
often concentrated, predictable, or at least growing sufficiently for most
large, established firms to feel secure and to extend more of the benefits of
that security to their employees than ever before. While racial and ethnic
minorities in the United States and women everywhere were subject to
discrimination, this system of organized capitalism raised living standards
for many working-class households, particularly if the head had a union job
in heavy manufacturing, such as steel or autos.
There was a widespread recognition that working-class jobs remained
physically demanding, often dangerous, frequently subject to authoritarian
management, and rarely satisfying or interesting in themselves, at least
for the vast majority of workers outside the skilled trades. However, high
pay provided satisfactions off the job in the form of personal consumption,
leisure activities, and comfortable family life. It is not surprising that the
unraveling of this system since the 1970s generated concern and debates
that persist. The breakdown of this high-growth, shared-benefit regime may
provide lessons for the future, in addition to its intrinsic importance.
FOUNDATIONAL RESEARCH
THE EARLY PERIOD
Even during the first postwar era exaggerated claims that the working class
in the United States and United Kingdom had joined a homogeneous middle
class were easily deflated (Centers, 1949; Goldthorpe, Lockwood, Bechhofer,
& Platt, 1967). However, the work of Kuznets (1955) in economics suggested
a general tendency toward greater equality, as well as rising wealth, as
economies modernized. Nations experience a temporary rise in inequality
when employment is split between a relatively backward farm sector and
modern business, but once the transition to modern production is complete
the income distribution becomes more compressed at a higher average level.
Without necessarily sharing the sweep of Kuznets’ general theory, empirical
researchers agreed that income inequality was significantly lower after the
war than before 1929 and had remained remarkably stable throughout the
postwar period (Blinder, 1980). Many economists took it for granted that
inequality in advanced economies is naturally moderate and stable.
Contributing to the generally benign picture was the emerging theory of
human capital within labor economics, which argued that the key determinant
of an individual’s earnings is his or her productivity potential, embodied
in their education and skills, or similar meritocratic characteristics. Early
research usually focused on individual earnings at a point in time, but could
be extended to the study of trends and the shape of the overall earnings
distribution.
The Future of Employment, Wages, and Technological Change
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Sociologist Daniel Bell (1976) contributed to this picture with his theory of
an emerging post-industrial society succeeding industrialism, analogous to
the previous shift from agricultural to industrial society. Science, theoretical
knowledge, and information replace energy as the driver of the economy.
High-skill services such as finance, consulting, health, education, social services, and government replace heavy manufacturing as the leading industries. Highly educated professionals, technical workers, and other experts
replace blue-collar workers and line managers as the dominant occupations.
Previous class divisions, inequalities, and tensions were predicted to fade as
societies became increasingly middle class.
In opposition to postindustrial theory, Braverman (1974) argued job skill
requirements are generally declining because firms are motivated to subdivide skilled jobs into simple, narrow tasks in order to hire cheaper labor
that needs less training. Easier to monitor and more expendable, workers
in deskilled jobs had less power to resist speedups. The assembly line was
the machine-age exemplar, but automated manufacturing involved mostly
easily taught machine monitoring and button pushing rather than technical
skills or knowledge. Growing white collar occupations included clerical and
retail jobs requiring few skills or easily deskilled, as in the case of secretaries
replaced by dedicated typing pools and data entry clerks whose word processors tracked their keystrokes automatically. Braverman predicted greater
class polarization as low-wage, low-skill jobs predominated, while a small
managerial and professional elite benefited.
Segmented labor market theory agreed that the mass of jobs were
low-skilled but recognized the postwar gains made by labor that Braverman
omitted. Edwards (1979) explained these gains as a form of class compromise
in which firms with the resources to do so offered concessions to workers
to neutralize some of the discontents from the prewar era. They included
relatively high pay, benefits, and job security, preferential access to internal
promotion opportunities (internal labor markets), and some protection from
arbitrary management through formal rules adopted voluntarily or under
pressure from unions. Privileged blue-collar workers and others formed part
of an enlarged primary labor market, albeit a subordinate segment, that was
previously restricted to higher-level white-collar workers, who continued to
occupy the upper or independent segment of the primary labor market.
Workers in secondary labor markets, by contrast, had low wages, minimal
benefits, little job security and stability, low unionization levels, and labored
under more personalistic and arbitrary management. These were dead-end
jobs, offering few opportunities for upward mobility and uninsulated from
competition with job-seekers in the external labor market outside the firm.
Most jobs in retail, food service, hospitality, personal services, and small-scale
or nonunion manufacturing were in this group, as were most part-time and
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
minimum wage positions. White males predominated in primary labor markets while minorities and women were overrepresented in the secondary
segment.
In contrast to all the preceding theories that explained wages by workers’
skills, segmented labor market theory focused on employer characteristics,
such as ability to pay (profit margins), and other institutional or structural
factors. Subordinate primary jobs were associated with greater firm size and
capital intensity, less competitive product markets, firm-specific training,
unions, and government regulations. For workers with the same low to
moderate skill or education levels, there were good jobs and bad jobs, rather
than a single labor market and wage, depending largely on the nature of the
firm or other external conditions. Segmented labor market theory recognized
the postwar middle class expansion and its inclusion of working-class jobs
in an explanation based on trends in economic institutions rather than
workers’ skills. The distinction would prove central to subsequent debates
over labor market trends.
CRISES AND RESPONSES
The charmed life of the United states’ economy from 1946 to 1970 turned to
a cursed life, racked by a succession of crises, from 1972 to 1989. At times
almost everything seemed to go wrong at once. Productivity growth, the
basic measure of an economy’s efficiency and ability to generate new wealth,
decelerated markedly. The rate of inflation jumped in response to deficit
financing of the Vietnam War, political manipulations of the business cycle,
and two shocks that raised oil prices per barrel more than tenfold in less
than 10 years. Economic growth stagnated and unemployment in the 1970s
averaged more than 6%. The Federal Reserve resolved to “break the back
of inflationary expectations” by inducing the deepest recession since the
1930s as a kind of shock therapy. Unemployment in the early 1980s soared
to levels not seen since the Depression.
Other advanced economies experienced similar problems in the 1970s but
Japan rebounded with startling strength and overwhelmed numerous, traditionally strong American industries with a flood of low-price, high-quality
products, including steel, autos, machine tools, cameras, televisions, video
and audio equipment, computer hardware, photocopiers, calculators,
watches, and microwave ovens, among others. An unprecedented wave of
plant closures spread across the Midwest and other industrial regions from
1977 to the late 1980s.
Barry Bluestone and Bennett Harrison’s Deindustrialization of America (1982)
was the first systematic argument that something fundamental had changed.
Instead of improving competitiveness through innovation and investment,
The Future of Employment, Wages, and Technological Change
5
firms had responded to declining profitability in the 1970s by focusing on
cutting labor costs. They moved operations to low-cost, nonunion locations
or outsourced to low-wage subcontractors, bought and sold businesses like
an investment portfolio churned for maximum short-term gain. High-skill
post-industrial jobs boomed, but so did low-wage, dead-end jobs in fast
food, discount retail, and personal services, while well-paid blue-collar
jobs shrank. Secondary jobs accounted for a growing share of jobs while
subordinate primary jobs were becoming scarcer and more similar to them.
The expansion of the bifurcated service sector and the growth of top earnings
were polarizing the earnings distribution (Tilly, Bluestone, & Harrison, 1986;
for a popular treatment see Kuttner, 1983).
Reinforcing this trend was a resurgence of free-market and rugged individualist philosophies that dominated much of the prewar era but occupied
the fringe during the postwar liberal consensus. An extraordinary wave
of changes included wage and benefit reductions, anti-union campaigns,
proactive downsizings, shareholder-centered management, growing use of
part-time and contingent workers, relocation, outsourcing and offshoring,
increased domestic and foreign sweatshops, more demanding output
standards, greater use of pay for performance, less seniority-based pay,
reductions in the inflation-adjusted minimum wage, financial and product
market deregulation, privatization of government services, and social
spending and tax cuts (Harrison & Bluestone, 1988). The new practices,
assumptions, and institutional framework persisted long after the crises to
which they were a response had passed and corporate profits had rebounded
with the business cycle in the late 1980s, becoming more or less permanent
and accepted (Kalleberg, 2009; Howell, 2013).
Robert Reich (1991, 175ff.) offered a synthesis and new twist on theories of
deindustrialization and post-industrialism. Reich predicted and celebrated
the growth of symbolic analysts whose work involves solving complex and
unstructured problems, complex communication, and creative production.
He lamented the hardships resulting from the inevitable shrinking of
routine production jobs that involve following “standard procedures and
codified rules” and includes data entry and routine software coding as
well as factory work. He added a new dimension to previous views of
in-person service jobs, such as such as cleaners, taxi drivers, food service, hotel
workers, and child care providers, by observing that even though most are
routine they are insulated from trade and offshoring because they must be
provided in the same location as their customers. Nevertheless, the jobs are
not insulated from immigrant competition and earned the label “service
proletariat” in recognition of their generally low pay and precarious quality
(Esping-Andersen, 1993).
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
Others were much more skeptical initially, arguing the trend was overwhelmingly toward the expansion of good jobs and that inequality had not
grown when measured properly or were temporary effects of the business
cycle, overvalued dollar, or the demographic bulge of less experienced
women and baby boomers joining the labor market. International trade
and employment shifts from goods to services were generally discounted.
Indeed, manufacturing’s faster productivity growth and declining share
of consumer spending relative to services, described by Bell, would be
expected to reduce manufacturing’s share of employment (Kosters & Ross,
1987, 1988; Lawrence, 1983, 1984; Rosenthal, 1985; for a review see Loveman
and Tilly, 1988). Declining manufacturing employment can reflect increased
efficiency in the face of inelastic demand rather than declining competitiveness, although it is hard to see US firms in autos, steel, or consumer
electronics as competitive leaders during that time.
By 1990, many of the skeptics’ arguments lost favor. A new business cycle
had peaked, new entrants were now experienced, and earnings inequality
had not fallen. Analyses showed the losses and gains over the 1980s were a
linear function of one’s position in the earnings distribution, that is, wages
at the low end were the most severely affected, the middle less so, while the
higher percentiles gained. Most of the growth in inequality was within industries, rather than because of changing shares of employment in goods and
services. Most striking for the human capital position was a sharp growth in
earnings gaps by education along with increases in the share of jobs being
filled by college-educated workers. According to standard economic logic,
increases in both the relative price of labor and the quantity purchased could
only mean that the demand for skill was rising faster than the supply. Because
the wage trends coincided roughly with the diffusion of microcomputers
in the 1980s and capital and skill were long believed to be complementary,
the growth in the education wage premium was attributed to the spread
of computers. Technology was driving a shift away from low-skilled jobs
toward medium and especially high-skilled jobs; the problem was a shortage
of good workers, not a shortage of good jobs. Because the pool of less educated job-seekers was not shrinking fast enough their wages fell and those of
relatively scarce skilled workers were bid up (Juhn, Murphy, & Pierce, 1992;
Katz & Murphy, 1992; for reviews see Levy & Murnane, 1992; Danziger &
Gottschalk, 1995; Katz & Autor, 1999).
Cross-national research suggested similar trends in some, although far
from all, other advanced economies, the differences often explained based
on varying trends in the supply of college-educated workers, although
institutional differences also received attention (Freeman, 1994; Freeman &
Katz, 1995; for reviews see Gottschalk & Smeeding, 1997). There was always
some ambiguity as to whether US inequality trends were due primarily to
The Future of Employment, Wages, and Technological Change
7
deceleration in the growth of the supply of college-educated workers or
computer-driven acceleration in the demand for them, but the latter tended
to attract more attention. This theory of skill-biased technological change (SBTC)
in one or another form remains the most widely accepted explanation of
inequality growth, although initially it was mostly a working assumption.
Those favoring institutional explanations noted that roughly half
the trend in inequality was as a result of growing inequality within
education-experience-gender groups (residual inequality), that is inequality
unrelated observable skill measures (Mishel & Bernstein, 1998). Most growth
in both overall inequality and the education premium occurred in the early
1980s, quite early in the information technology (IT) diffusion process, and
was over by the time it attracted mainstream attention. Inequality was more
stable in the 1990s, when IT continued to progress (Howell, 1995, 1997;
Handel, 2000, 2007). Most measures of productivity did not increase more
rapidly in the 1980s than other decades (Mishel & Bernstein, 1998). Thus,
the timing of inequality growth seemed very front-loaded compared to
trends in computer diffusion and coincided more closely with the timing of
severe macroeconomic and competitiveness shocks. Indeed, the recession
in the early 1990s affected college-educated workers more severely than
previous downturns. The distance between the middle and low end of wage
distribution stabilized in the early 1990s and reversed itself somewhat in
the late 1990s, a period when internet use burgeoned and, as it happens,
unemployment fell to its lowest level since the late 1960s. Workers in IT and
other technical occupations also did not seem to gain more than comparably
educated professional workers since 1980, somewhat anomalous for a
theory based on their pivotal role in transforming production processes
(Bernstein & Mishel, 2001; Handel, 2003; Lemieux, 2008; Teitelbaum, 2014).
Studies also found the declining the real value of the minimum wage and
unionization rates explained substantial portions of inequality growth in the
1980s (DiNardo, Fortin, & Lemieux, 1996; Fortin & Lemieux, 1997).
CUTTING EDGE RESEARCH
The first study drawing a direct connection between computers, wages, and
skills showed a very large wage premium for computer use at work itself,
interpreted as a reward for computer skills; this effect also explained part
of the rising education premium (Krueger, 1993). Numerous studies of the
computer wage premium in various advanced economies followed (for a
review see Handel, 2003). DiNardo and Pischke (1997) cast doubt on this
line of research when they reported similar wage differentials in Germany
associated with using calculators, telephones, and pens or pencils at work,
or even sitting down while working. They concluded the wage differentials
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
associated with computer use were not reliable indicators of the payoffs to
specific skills and likely reflected more general qualities of computer users or
their jobs. Many later studies continued to take the computer wage premium
at face value, while others found evidence for the skeptical (Handel, 2007),
as well as the original (Spitz-Oener, 2008) interpretation. Other studies sympathetic to SBTC agreed that computer skills per se were not a major source
of skill upgrading (Levy & Murnane, 1996; Bartel, Ichniowski, & Shaw, 2000;
Autor, Levy, & Murnane, 2002, p. 440).
One researcher put the question succinctly: “By What Means Does
Information Technology Affect Employment and Wages?” (Shaw, 2002).
There was a common feeling that “higher level problem-solving skills have
almost certainly increased in value with the availability of computers”
(Executive Office of the President, 1996, p. 202). However, case studies of
factory automation, for example, found generally modest change in reading, arithmetic, or other skill requirements (Fernandez, 2001; Keefe, 1991;
Milkman & Pullman, 1991) and no increase in educational requirements
(Bartel et al., 2000), although skilled workers sometimes needed significant
training and broader knowledge to maintain computer-based equipment.
Increased computerization at a bank relieved low-level accountants of
routine copying, computational, and data entry tasks, permitting more time
for problem-solving, but this meant mainly more time to use skills that
had been part of their prior educational preparation rather than qualitative
upgrading of the job’s requirements, which were fairly repetitive in any case
(Levy & Murnane, 1996). Computers were an integral part of the work of
managers and professionals but no one showed that most office software
was either difficult to learn, had large effects on other knowledge or skill
requirements, or raised educational requirements within occupations.
If using computers did not change greatly the skill content of jobs, IT might
have affected skill demand by altering the relative sizes of differently skilled
occupations. Automation can eliminate less-skilled jobs, such as factory
operatives, data entry clerks, and telephone operators. The power of office
IT systems may open new opportunities for high-skill positions, such as
financial analysts, market researchers, and data analysts, as well as middleto high-skill positions related to IT itself, such as network administrators
and web site designers. However, two problems in isolating such effects are
precomputer occupation trends toward greater professional and associate
professional jobs and fewer blue-collar jobs across advanced economies,
and the generally gradual rates of occupational change regardless of period
(Gagliani, 1986; Handel, 2012; Howell & Wolff, 1991; Wyatt & Hecker, 2006).
While some studies have found associations between IT investment
and skill-biased changes in employment composition (Berman, Bound,
& Griliches, 1994; Autor, Katz, & Krueger, 1998), others with more direct
The Future of Employment, Wages, and Technological Change
9
measures of technology adoption often found slight compositional effects
(Doms, Dunne, & Troske, 1997; Fernandez, 2001; Handel, 2003, p. 60f.;
Handel, 2004; Milkman & Pullman, 1991). There seems little doubt, however,
that clerical workers in general and especially those in database-intensive
industries such as banking and insurance are declining in relative numbers
and likely being replaced by IT (Handel, 2003). However, confidence in this
conclusion must be weighed against the generally better performance of
women’s wages since 1980 compared to men’s wages, although women’s
educational attainment rose faster and their workforce attachment grew
much stronger in this period, as well (Blank, 2011).
As the stabilization and contraction of earnings inequality below the
median and its difficulties for the standard SBTC account became clearer,
Autor, Levy, and Murnane (2003) proposed a modified version based on current thinking in computer science. Middle-skill job tasks that can be reduced
to a set of explicit rules can be captured in a computer program more easily
than either higher- or lower-skill tasks involving tacit knowledge, judgment,
intellectual flexibility, generalized problem solving, creativity, and complex
communication, but also visual processing, finger dexterity, and motor skills
in irregular or uncontrolled contexts, such as operating a vehicle, janitorial
work, and other service proletariat tasks. These middle-skill programmable
tasks have come to be called routine, which is somewhat confusing given
its usual association with low-skill work. By decreasing the number of
middle-skill jobs while low-skill jobs have increased, wages at the bottom
have been pushed up and wages in the middle of the distribution have
softened. In this demand–supply framework, technology-driven skill polarization has decreased wage polarization below the median while increasing
it above the median, consistent with observed patterns in the late 1990s.
A literature too large to summarize has emerged supporting this view
(Spitz-Oener, 2006; Goos and Manning, 2007) and rejecting it thoroughly,
including evidence that the posited skill trends are not visible in the 2000s
(Mishel, Schmitt, & Shierholz, 2013). Among the points that are clear is that
the concept of “routineness” in the sense of computer programmability is
very difficult to operationalize and has no consensus measure, occupational
composition has changed gradually in the direction of upgrading throughout
the postwar period in most advanced economies rather than showing clear
acceleration since the widespread introduction of computers (Handel, 2012),
and international trade, particularly low-cost Chinese imports, have played
a significant role in the accelerated decline of manufacturing employment
since China’s accession to the World Trade Organization in 2001 (Autor,
Dorn, & Hanson, 2013). There is also renewed interest in the number of
domestic jobs that can be moved offshore, although actual magnitudes of
effects are even more difficult to determine (Blinder & Krueger, 2013).
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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
KEY ISSUES FOR FUTURE RESEARCH
Most researchers today would agree on certain key points. Although trends
are not uniform, the dominant tendency is in the direction of an upgrading
in the skill requirements of jobs, rather than deskilling, as Braverman
argued. Employment shifts from manufacturing to services cannot be
interpreted as a uniformly positive post-industrial stage in the economy’s
evolution, as Bell envisioned There are numerous service industries with
predominantly low-skill, low-wage jobs (e.g., food service, retail) and even
some of the exemplars of knowledge industries have numerous jobs that are
either low-skill, low-paid, or both, such as healthcare. There is no question
that inequality grew substantially and most rapidly in the 1980s and most
inequality growth since the mid-1990s has been between the top of the
earnings distribution and the rest; the middle and lower percentiles have
stopped moving further apart. The losses in manufacturing reduced an
important source of middle-class incomes for people holding working-class
jobs, although the exact causes are debated. However, global markets are
more integrated than before and even if manufacturing imports from China
begin to wane, a rebound in manufacturing employment is unlikely to be
large enough turn back the clock. Clerical jobs have declined much more
gradually since 1980 after a century of growth and it is likely that IT is
partly responsible. Offshoring of white-collar work, including middle- and
high-skill jobs, has grown but its current levels and future path are largely
unknown. Gaining a more concrete understanding of the effects of IT on job
skill requirements, skill demand, and employment, and gauging the actual
magnitude of offshoring and trade in finished and semi-finished goods,
intermediate inputs, and services are key issues for future research.
Much less remarked on in the literature and quite distinct from the diffusion
of computers is the large role that the healthcare and related fields will continue to play in job growth, reflecting population aging, spending patterns,
and other factors specific to that market (Richards & Terkanian, 2013).
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14
EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES
MICHAEL J. HANDEL SHORT BIOGRAPHY
Michael J. Handel is an Associate Professor of Sociology at Northeastern
University in Boston, MA. His research focuses on the relationships between
skills, technology, workplace organization, and the growth of inequality.
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