Technological Change and the Demand for Skills in the 1980s: Does Skill Mismatch Explain the Growth of Low Earnings?

Abstract:     
The sharp decline in real wages and the drop in relative earnings among low-skilled workers generally is attributed to structural shifts in the labor force induced by technological change that has limited the demand for workers with low skill levels. While the claim that the cause of reduced earnings is a decline in the demand for low-skilled workers is common, the statistical evidence backing this assertion has not established such a link. In attempting to explain the reasons underlying the 15-year decline in earnings, David R. Howell asserts that, in fact, the skill mismatch does not adequately explain the problems faced by low-skill workers: If technological change did indeed reduce the demand for lower skilled workers, there should have been a corresponding decline in the employment share of these workers as well as a steadily rising rate of joblessness among them.

Instead, dramatic growth in the demand for low-wage workers took place during the past 15 years, while their wages continued on a downward path. In an examination of employment trends among the non-supervisory workforce, Howell finds that there was a rise in low-wage jobs in both goods and service industries. In fact, "the last decade and a half has made it abundantly clear that the choice concerning the non-supervisory workforce is not limited to high skills or low wages," but instead "toward gradually higher skills with dramatically lower wages." The case study literature indicates that technological change did not alter the skill distribution among jobs, but that changes in job opportunities and skill level requirements varied by firm, industry, and occupation.

Number of Pages in PDF File: 41

JEL Classification: J31

working papers series