The relentless upwards march of the accountant and hairdresser, at the expense of the downtrodden (but presumably better-coiffed) farmer, is one of the lesser-known societal power struggles of the post-Industrial Revolution period. But transition on this scale is not costless, with complex shifts in the pattern of skilled employment and wages. In its first phase, the Industrial Revolution appears to have led to a shift towards unskilled employment as “the artisan shop was replaced by the factory and later by the assembly line” (Acemoglu (2008)). The share of unskilled UK workers doubled between 1700 and 1850, from around 20% to 40% (Chart 19). The same was true, somewhat later, in the US (Katz and Margo (2013)). 6  BIS central bankers’ speeches  Later in the 19th and into the 20th centuries, the demand for high-skilled workers also began to rise. Rising incomes created a demand for new goods and new, more complex and technical, ways of producing them. That increased the demand for operatives, engineers, mechanics and managers, in addition to hairdressers and accountants. Between 1850 and 1910, the share of skilled workers in US manufacturing rose from 3% to around 12% (Katz and Margo (2013). The share of low-skilled jobs also increased, from around 58% to 65%. Over the same period, the share of mid-skilled workers shrank from 40% to 23% (Chart 20). In other words, there was a “hollowing out”, or U-shape, in the pattern of employment – the hollowing-out, in effect, of the artisan.
If the first part of the 19th century had seen substitution effects dominate, the latter half saw compensation effects in the ascendancy. Moving into the 20th century, and the third industrial revolution, these emerging patterns in jobs and wages have become clearer. Technology appears to be resulting in faster, wider and deeper degrees of hollowing-out than in the past. Why? Because 20th century machines have substituted not just for manual human tasks, but cognitive ones too. The set of human skills machines could reproduce, at lower cost, has both widened and deepened. Chart 22 shows the employment pattern in the UK over recent years, ranking professions’ skills by their average pay, while Chart 23 shows the picture for a set of countries over a similar period. They tell a striking and consistent story of mid-skill jobs being lost, counterbalanced by employment gains at the high-skill and, to lesser extent, low-skill segments of the workforce. The U-shape, or “hollowing out”, has deepened and widened. What has happened to these displaced mid-skill workers? Some appear to have “skilled-up”, typically through higher or further education. In the UK, total numbers in higher education have increased from around 130,000 in 1970 to over 2 million today. In the US, total numbers in higher education have increased from 2.4 million just after the Second World War, to over 20 million today. As in the late 19th century, this skilling-up has enabled workers to keep one-step-ahead of the machine. But some displaced workers have not been on the up-escalator.