General Purpose Technologies: Engines of change

This dissertation examines the relevance of technology in explaining structural and cyclical changes in the labor and product markets.;The three chapters rely on a General Purpose Technology and on the distinction between routine and nonroutine jobs. A General Purpose Technology has three characteristics: it has pervasive use in all industries, it improves over time, and it is able to foster other innovations. This dissertation considers the technology of computers in the second half of the 20th century and electricity in the first half. It defines "pervasive use" as the technology's ability to substitute for some types of jobs---called routine jobs---more than others. Routine jobs consist of repetitive tasks, follow an explicit set of rules, and can easily be automated by the technology. Nonroutine jobs are the remaining jobs, which cannot be easily replaced by the technology. For computers, examples of routine jobs are clerks and secretaries, since their work can be automated with information processing software, whereas examples of nonroutine jobs are managers and health aides, since their work requires creativity or personal interactions. For electricity, examples of routine jobs are laborers on the factory floor, since their work can be automated by the conveyor belt, whereas examples of nonroutine jobs are foremen and engineers, since their work requires attention or detailed calculations. The distinction between routine and nonroutine jobs depends on the technology: accountants can be nonroutine relative to electricity and routine relative to computers.;The first chapter examines computers as a theoretical explanation for changes in the US labor market in recent decades. When computers become cheap and competitive compared to workers, they diffuse more rapidly and become more important in the conventional mechanism of capital-labor substitution. The model can account for recent structural changes with this trend of automation: employment has shifted away from routine occupations and the labor share of income has declined. The model also predicts that recessions accelerate the decline in routine occupations---firms prefer to destroy routine jobs during a downturn, when the opportunity cost of restructuring is low. This acceleration can account for recent cyclical changes of the labor market: routine job losses are concentrated in recessions and the ensuing recoveries are jobless.;The second chapter examines the labor market and electricity in the first half of the 20th century. The 1920s and 1930s witnessed large changes in the US labor market, with a shift away from dexterity-intensive occupations, a productivity speedup, and low job creation. The second chapter asks whether the model of the first chapter can also explain labor market changes in the 1930s with the adoption of electricity. It supports the model's main assumption by empirically testing the model's prediction for the labor share of income. The identification strategy uses a state's initial loading on the technology to generate electricity---hydroelectric power or coal power---as an instrument for changes in the price of electricity. It also uses a newly digitized dataset for the concrete industry from 1929 to 1935 to provide plant-level measures of the labor share of income. Technical progress in electric utilities caused a decrease in the labor share of income of the downstream industry of concrete. This result supports the mechanism in the model, which can in turn explain other features of the 1920s and 1930s: structural changes in employment, a productivity speedup, and a weak recovery of employment after the Great Depression.;The third chapter examines the behavior of consumption in the second half of the 20th century. The recoveries from the last three recessions in the United States were not only jobless, they were also slow. The growth rate of output and consumption after the trough of the business cycle is twice as small for the last three recessions compared to previous ones. This chapter asks whether the structural decline in employment of routine occupations can also account for recent slow recoveries in consumption. It assumes that workers in nonroutine occupations are optimizing agents who can smooth consumption by saving, whereas workers in routine occupations are hand-to-mouth agents who consume all of their income. Before the 1980s, workers in routine occupations can easily find another routine job right after the recession, so consumption decreases in the recession and "bounces back" in the recovery. After the 1980s, workers in routine occupations need to go through a period of retraining in order to find a new job, so the recovery of consumption is delayed until they finish retraining. In a simulation of the model, the recovery of consumption is twice smaller after the 1980s than before, which suggests that this mechanism may be quantitatively important in explaining recent slow recoveries. (Abstract shortened by UMI.).