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 drop in relative earnings among low-skilled workers generally is attributed to structural shifts in labor force induced by technological change that has limited demand for workers with low skill levels. While claim that cause of reduced earnings is a decline in demand for low-skilled workers is common, statistical evidence backing this assertion has not established such a link. In attempting to explain reasons underlying 15-year decline in earnings, David R. Howell asserts that, in fact, skill mismatch does not adequately explain problems faced by low-skill workers: If technological change did indeed reduce demand for lower skilled workers, there should have been a corresponding decline in employment share of these workers as well as a steadily rising rate of joblessness among them. Instead, dramatic growth in demand for low-wage workers took place during past 15 years, while their wages continued on a downward path. In an examination of employment trends among 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 choice concerning 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 skill distribution among jobs, but that changes in job opportunities and skill level requirements varied by firm, industry, and occupation.