This blog post examines the trends of growth and inequality that shook the U.S. economy in the 20th century, providing an in-depth analysis of how changes in education, rather than technology, shaped the labor market and wage structure.
The U.S. economy of the last century can be divided into several distinct periods. From the 1930s until the late 1970s, income inequality moderated. Particularly, the roughly 30-year period immediately following World War II is recorded as a golden age where both economic growth and income distribution issues were simultaneously resolved. However, since the 1980s, income inequality has rapidly worsened, and economic growth rates have also declined. Regarding these changes, many economists have focused on technological progress. While technological progress is sometimes hailed as a panacea capable of simultaneously solving the dual challenges of growth and distribution, it is also criticized as a factor worsening income distribution and threatening social stability. Regardless of which perspective one adopts, however, there were limitations to providing a comprehensive explanation of the historical reality of the 20th-century U.S. economy.
Among these, the theory of the race between education and technology proposed by Goldin and Katz is regarded as a representative study that transcends the limitations of existing research while not overlooking the importance of technological progress. They emphasize that while technology clearly plays a significant role in economic change, education is more crucial for understanding the long-term trend of inequality. For the adoption of new technology to lead to actual productivity gains and economic growth, workers must be proficient in operating the new machinery. Such proficiency is developed through years of education in formal institutions, namely schools. Workers who graduate from school are more productive than those who do not, and consequently receive relatively higher wages; this is called the skill premium.
The nature of the skills provided by schools has changed with technological shifts over time. In early 20th-century industrial settings, basic calculation skills and the ability to read machine manuals and blueprints were required, and this education was primarily provided in middle and high schools. From the latter half of the 20th century to the present, as machinery became more complex and the application of IT technology grew crucial, the cultivation of abstract thinking and analytical skills, along with degrees in STEM fields like science, technology, engineering, and mathematics, has been particularly demanded. Recently, the need for data science, artificial intelligence technology, and digital transformation capabilities has been further emphasized, making the existing structure linking technology and education even more complex.
Goldin and Katz define technology as the demand for skilled labor and education as the supply of skilled labor. They liken the race between the increasing demand for skilled labor driven by technological progress and the increasing supply of skilled labor driven by educational expansion to explain the long-term evolution of income inequality and growth. According to their analysis, technology consistently increased the relative demand for skilled labor throughout the 20th century. However, while the rate of increase in demand remained largely constant, the rate of increase in the supply of skilled labor varied significantly by period. In the first half of the 20th century, the supply of skilled labor grew rapidly, outpacing the rate of increase in demand. After 1980, however, the rate of increase in the supply of college-educated workers slowed significantly, failing to keep pace with the rate of increase in demand for skilled labor. Thus, the narrowing of the skill premium from 1915 to 1980 was explained as a result of the faster growth in the supply of skilled labor—in other words, education outpaced technology. Conversely, the widening of the skill premium and the growing wage gap based on educational attainment after 1980 was seen as stemming from the decline in the growth rate of the supply of college-educated workers. Combined with historical research showing that a significant portion of income inequality can be explained by wage gaps based on educational attainment, this analysis allowed the economic growth and income inequality in the United States to be explained as a race between education and technology.
So, where did the driving force behind education come from? Specifically, what was the impetus that enabled the rapid supply of high-quality skilled labor sufficient to meet the demands of the production sector? Goldin and Katz focus on the mass movement for secondary education that gained momentum after the 1910s. Many people who remained at the bottom of the competitive ladder in the late 19th century hoped education would provide new opportunities for their children, and this aspiration spread as a grassroots movement. This aspiration was eventually reflected in education policy. Local governments began independently collecting property taxes to establish public secondary schools, hire teachers, and provide the education needed for quality jobs free of charge. Their analysis clearly demonstrates how the establishment of this new mass education system contributed to America’s growth into a wealthy nation and how countless impoverished young people could actually benefit from the fruits of economic growth.
The theory of the race between education and technology provides a crucial theoretical framework for analyzing how growth and distribution can change within a dynamic interaction: the emergence of new technologies and shifts in labor demand; educational institutions responding to production site needs by training skilled labor; supporting institutions and policies responding to this; and the subsequent emergence of new technologies. However, this theory also has significant limitations, continuing to spark diverse debates surrounding growth and distribution. These debates reveal the complexity of reality, where technological change, educational systems, and structural changes in the labor market interact, leaving important challenges regarding the direction future economic policy should take.
