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Wednesday, August 08, 2007

Social Consequences of the Industrial Revolution

Chapter 14 of Gregory Clark's new book A Farewell to Alms on the social consequences of the Industrial Revolution begins with:

14 Social Consequences

In proportion, therefore, as the repulsiveness of the work increases, the wage decreases. -- Karl Marx and Friedrich Engels (1848)

The Industrial Revolution was driven by the expansion of knowledge. Yet, stunningly, unskilled labor has reaped more gains than any other group. Marx and Engels, trumpeting their gloomy prognostications in The Communist Manifesto in 1848, could not have been more wrong about the fate of unskilled workers. Figure 14.1 shows a typical image of Industrial Revolution misery that somehow has worked its way into modern popular consciousness.

Figure 14.1 Able-bodied poor breaking stones for roads in Bethnal Green, London, 1868

The reality is very different. By 1815 real wages in England for both farm laborers and the urban unskilled had begun the inexorable rise that has created affluence for all. Nor was it even the case that the gains to land and capital initially exceeded those of labor. From 1760 to 1860 real wages in England rose faster than real output per person. The innovators, the owners of capital, the owners of land, and the owners of human capital all experienced modest rewards, or no rewards, from advances in knowledge. Thus modern growth, right from its start, by benefiting the most disadvantaged groups in preindustrial society, particularly unskilled workers, has reduced inequality within societies.

But while growth so far has been benign, there is no guarantee that it will continue to promote equality within societies. We may soon face the gloomy dystopia feared by so many writers, in which the wages of unskilled labor drop below the socially determined "subsistence wage" and societies are forced to support a large fraction of the population permanently through the public purse.

This section of the chapter (pgs. 285-289) is part of a more general discussion of changes in inequality. It looks at past and potential future changes in the wages of unskilled labor:

Technological Advance and Unskilled Wages

We think of the Industrial Revolution as practically synonymous with mechanization, with the replacement of human labor by machine labor. Why in high-income economies is there still a robust demand for unskilled labor? Why do unskilled immigrants with little command of English still walk across the deserts of the U.S. Southwest to get to the major urban labor markets to reap enormous rewards for their labor, even as undocumented workers? Why were there people camped out for months and even years at the Channel Tunnel freight depot in northern France, waiting for a chance to break through the security fence and hop onto a train for Britain?

Soon after the arrival of the Industrial Revolution the machinery question became a matter of debate among political economists. Would new labor-saving machines reduce the demand for labor? Famously Ricardo, who had initially defended the introduction of machinery as benefiting all, by 1821 constructed a model according to which some types of labor-saving machinery produce technological unemployment. His demonstration, however, relied on workers receiving a fixed subsistence wage, and it was later appreciated that, as long as there are sufficient substitution possibilities between capital and labor, there will always be a positive marginal product for each type of labor (see chapter 2), and hence the possibility of full employment.

This general reassurance from economic reasoning is of little practical value, however, since it offers no assurance on what the actual level of wages will be. Why was it that there was not only a job for all unskilled workers, but a well-paying one? After all, there was a type of employee at the beginning of the Industrial Revolution whose job and livelihood largely vanished in the early twentieth century. This was the horse. The population of working horses actually peaked in England long after the Industrial Revolution, in 1901, when 3.25 million were at work. Though they had been replaced by rail for long-distance haulage and by steam engines for driving machinery, they still plowed fields, hauled wagons and carriages short distances, pulled boats on the canals, toiled in the pits, and carried armies into battle. But the arrival of the internal combustion engine in the late nineteenth century rapidly displaced these workers, so that by 1924 there were fewer than two million. There was always a wage at which all these horses could have remained employed. But that wage was so low that it did not pay for their feed, and it certainly did not pay enough to breed fresh generations of horses to replace them. Horses were thus an early casualty of industrialization.

Many tasks performed by people seemed as replaceable as those of horses. And indeed a number of human tasks were quickly mechanized. Threshing grains, the staple winter occupation, which absorbed as much as a quarter of agricultural labor input, was mechanized by the 1860s. Reaping and mowing followed later in the nineteenth century. But the grim future of a largely unskilled and unemployable labor force has not come to pass. Instead the earnings of these unskilled workers, as shown in figure 14.3, have risen relative to those of the skilled.

There seem to be two explanations for the relatively high value to the modern economy of even unskilled labor. The first is that, unlike horses, people have attributes that machines so far cannot replace, or can only replace at too high a cost. People supply not just power but also dexterity. We are very good at identifying objects and manipulating them in space, and machines are still surprisingly poor at these tasks. Thus the fast-food industry that feeds a highly standardized product to legions of Americans every day still does so using human labor to bring meat to heat and seared flesh to bun (figure 14.5). Houses and hotel rooms are still cleaned by maids, gardens are still weeded by gardeners. People guide trucks and cars on highways, and they guide powered tools in farming, mining, and construction. Supermarkets contain thousands of standardized packages of product, but they are still placed on the shelves by people, and priced and bundled at checkout by people. ...

Ironically computers have found it much easier to replace what we think of as the higher cognitive functions of humans -- determining amounts due, calculating engineering stresses, taking integrals -- than to replace the simple skills we think of even the most unlearned as possessing.

Another difficult-to-replace ability of humans is our ability to interact with other people. We have a social intelligence that alerts us, at least in part, to the thoughts and moods of others, and that ability can be very valuable in modern commerce. ... Selling is a huge part of modern economies, and on the front lines in that war of commerce people are still very useful foot soldiers. A pleasant interaction with the seller can make customers choose to eat in this restaurant as opposed to that one, to shop here as opposed to there. ...

The past in this respect, however, is no guide to the future. As long as computer processing power continues to become cheaper, the threat will always be present that these last scarce attributes of even unskilled human labor will lose their value. Then there truly will be a class of displaced workers forced to look to the charity of their fellow citizens for their subsistence.

We have considered two attributes of the human machine that are hard to replace. The other factor that has kept unskilled wages high since the Industrial Revolution has been the unexpected curtailment in the supply of people in the most rapidly growing economies. We saw for the Malthusian era in England that the more income and assets people had at the time of their deaths the more surviving children they had. Economic success and reproductive success went hand in hand. If this pattern had continued to the present, the population would have grown enormously, and the Ricardian dystopia in which growth is eventually curtailed by the fixed amount of land would have been closer to realization. I now consider these demographic changes in detail. ...

    Posted by on Wednesday, August 8, 2007 at 12:15 AM in Economics, Income Distribution, Technology | Permalink  TrackBack (0)  Comments (23)



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