The labour market causes and consequences of general purpose technological progress: evidence from steam engines

by Leonardo Ridolfi (University of Siena), Mara Squicciarini (Bocconi University), and Jacob Weisdorf (Sapienza University of Rome)

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Should workers fear technical innovations? Economists have not provided a clear answer to this perennial question. Some believe machines make ‘one man to do the work of many’; that mechanisation will generate cheaper goods, more consumer spending, increased labour demand and thus more jobs. Others, instead, wor­ry that automation will be labour-cheapening, making workers – especially unskilled ones – redundant, and so result in increased unemployment and growing income inequality.

Our research seeks answers from the historical account. We focus on the first Industrial Revolution, when technical innovations became a key component of the production process.

The common understanding is that mechanisation during the early phases of industrialisation allowed firms to replace skilled with unskilled male workers (new technology was deskilling) and also male workers with less expensive female and child labourers. Much of this understanding is inspired by the Luddite movement – bands of nineteenth century workers who destroyed early industrial machinery that they believed was threatening their jobs.

To test these hypotheses, we investigate one of the major technological advancements in human history: the rise and spread of steam engines.

Nineteenth century France provides an exemplary setting to explore the effects. French historical statistics are extraordinarily detailed, and the first two national industry-level censuses – one from the 1840s, when steam power was just beginning to spread; and one from the 1860s, when they were more common – help us to observe the labour market conditions that led to the adoption of steam engines, as well as the effects of adopting the new technology on the demand for male, female and child labour, and on their wages.

Consistent with the argument that steam technology emerged for labour-cheapening purposes, our analysis shows that the adoption of steam technology was significantly higher in districts (arrondissements) where:

1. industrial labour productivity was low, so that capital-deepening could serve to improve output per worker;
2. the number of workers was high, so the potential for cutting labour costs by replacing them with machines was large;
3. the share of male workers was high, so the potential for cutting labour costs by shifting towards women and children was large; and
4. steam engines had already been installed in other industries, thus lowering the costs of adopting the new technology.

We also find, however, that steam technology, once adopted, was neither labour-saving nor skill-saving. Steam-powered industries did use higher shares of (cheaper) female and child workers than non-steam-powered industries. At the same time, though, since steam-operating industries employed considerably more workers in total, they ended up using also more male workers – and not just more women and children.

We also find that steam-powered industries paid significantly higher wages, both to men and women. In contrast with the traditional narrative of early industrial technologies being deskilling, this result provides novel empirical evidence that steam-use was instead skill-demanding.

Although workers seemed to have gained from the introduction of steam technology, both in terms of employment and payment opportunities, our findings show that labour’s share was lower in steam-run industries. This motivates Engels-Marx-Piketty-inspired concerns that advancing technology leaves workers with a shrinking share of output.

Our findings thus highlight the multi-sided effects of adopting general-purpose technological progress. On the positive side, the steam engine prompted higher wages and a growing demand for both male and female workers. On the negative side, steam-powered industries relied more heavily on child labour and also placed a larger share of output in the hands of capitalist.