Working Paper: CEPR ID: DP7045
Authors: Kevin H. O'Rourke; Ahmed S. Rahman; Alan M. Taylor
Abstract: Technological change was unskilled-labor-biased during the early Industrial Revolution, but is skill-biased today. This is not embedded in extant unified growth models. We develop a model which can endogenously account for these facts, where factor bias reflects profit maximizing decisions by innovators. Endowments dictate that the early Industrial Revolution be unskilled-labor-biased. Increasing basic knowledge causes a growth takeoff, an income-led demand for fewer educated children, and the transition to skill-biased technological change. The simulated model tracks British industrialization in the 18th and 19th centuries and generates a demographic transition without relying on either rising skill premia or exogenous educational supply shocks.
Keywords: demography; endogenous growth; unified growth theory
JEL Codes: J13; J24; N10; O31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unskilled-labor biased technological change (F66) | decrease in skill premium (F66) |
| decrease in skill premium (F66) | increase in fertility rates (J13) |
| unskilled-labor biased technological change (F66) | increase in fertility rates (J13) |
| increase in fertility rates (J13) | maximize income through child labor (J82) |
| basic knowledge growth (G53) | shift towards skill-biased technological change (O33) |
| shift towards skill-biased technological change (O33) | lower fertility rates (J13) |
| shift towards skill-biased technological change (O33) | increase in educational attainment (I24) |
| rising overall wages (J39) | shift from quantity of children to quality of education (I21) |