Changes in the Demand for Skilled Labor within U.S. Manufacturing Industries: Evidence from the Annual Survey of Manufacturing

This paper investigates the shift in demand towards skilled labor in U.S. manufacturing. Between 1979 and 1989, employment of production workers in manufacturing dropped by 2.2 million or 15 percent while employment of non-production workers rose by 3 percent. A decomposition of changing employment patterns in each of 450 industries reveals that the defense buildup and trade deficits can account for only a small part of the shift in demand towards non-production workers. We conclude that production labor-saving technological change is the most likely explanation for the shift in demand towards non-production workers since the shift is mostly due to changes in labor demand within industries rather than reallocation of employment towards industries with higher shares of skilled labor. Strong correlations between within-industry skill upgrading and both increased investment in computers on the one hand and increased investment in R&D on the other provide further evidence for production labor saving technological change.