Specialization and the skill premium in the 20th century

Abstract

The skill premium fell substantially in the first part of the 20th century and then rose at the end of the century. I argue that these changes are connected to the organization of production. When production is organized into large plants, jobs become routinized, favoring less-skilled workers. A model is introduced that parameterizes capital's ability to do many tasks, that is, capital's flexibility. When calibrated to data on the distribution of plant sizes, the model can account for between half and two-thirds of the movement in the skill premium over the century.