3  All speeches are available online at www.bankofengland.co.uk/speeches  3  But such big transitions take time. Workers generally cannot move seamlessly to new jobs in which they can be productive. The benefits of the First Industrial Revolution, which began in the latter half of the 18  th  th 7  century, were not felt fully in productivity and wages until the second half of the 19 . th  Indeed, at the start of the 19 century in the UK, despite a sharp pickup in productivity, wage growth stalled and the labour share fell – a period dubbed “Engels’ pause”. A Framework for Examining Technical Change and the Labour Market 8  To understand such dynamics it helps to have a common conceptual framework. The impact of technological change on employment and wages can be depicted as the sum of three major effects: destruction, productivity and creation. The destruction effect is the focus of most alarmist accounts: the replacement of labour by technology, with an associated reduction in labour demand, wages and employment. Less commonly acknowledged are the positive effects on aggregate demand of new technologies, what can be termed the productivity effect. This effect is analogous to the classic Say’s law in which supply creates its own demand. Technology makes those in work more productive, in time boosting wages and increasing the returns to those who own capital. This greater income boosts aggregate demand and leans against the destruction effect.
But as students of economic history know (and policymakers learn at their cost), without the right institutions, structural changes – whether large changes to trading relationships or technological revolutions – can be painful. Whitaker recognised that “Readiness to adapt to changing conditions is a sine qua non for economic 1  success” and that adaptability required a series of changes to Ireland’s institutions. Major reforms to education were essential to match the skills of the Irish workforce to the potential jobs that increased inward investment could bring. A 1964 report on Manpower Policy, which Whitaker oversaw as chair, advocated 2  greater investment in the STEM subjects, readying a generation for the IT revolution. More broadly, Ireland repeatedly increased standards of education, beginning with the introduction of universal secondary schooling in 1967, resulting in levels of educational attainment today that exceed the OECD average. 3  Whitaker also advocated reforms of labour market institutions – to tackle restrictive work practices and ensure pay was more closely linked to productivity. 4  Emphasis was also placed on a competitive environment for business to help attract foreign capital, in part through the overhaul of the corporate tax regime. And improvements were made to infrastructure, such as power supplies and transport services. 1  Taken from “Economic Development”, a report on the Irish Economy overseen by Whitaker and published in 1958. Whitaker played a central role in improving education in the public sector.