This paper empirically tests if the Second Industrial Revolution changed the way inputs were used in the manufacturing sector, and if this helped absorb skill mix changes induced by immigration. In particular, it estimates the impact of immigration-induced skill mix changes on input ratios within manufacturing industries using variation across U.S. counties between 1860 and 1930. The evidence suggests that manufacturing production functions were strongly altered over the period under study: capital began as a q-complement for skilled and unskilled workers, and then dramatically increased its relative complementary with skilled workers around 1890. Simulations of a parametric production function calibrated to our estimates
imply the level of capital-skill complementarity after 1890 likely allowed the U.S. economy to absorb the large wave of less-skilled immigration with a modest decline in less-skilled relative wages. This would not have been possible under the older production technology. |
