Working Paper: NBER ID: w14484
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: Technological Change; Demographic Transition; Industrial Revolution; Labor Economics; Economic Growth
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) | decline in skill premia (F66) |
| decline in skill premia (F66) | rising fertility rates (J13) |
| rising fertility rates (J13) | shift in household strategies towards maximizing current consumption through increased child labor (D19) |
| basic knowledge growth (G53) | shift towards skill-biased technological change (O33) |
| shift towards skill-biased technological change (O33) | lower fertility rates (J13) |
| rising overall wages (J39) | investment in education (I26) |
| investment in education (I26) | higher educational attainment (I23) |
| higher educational attainment (I23) | demographic transition characterized by lower fertility rates (J11) |