Case 5 Study:

The relationship between technological change and human capital is complicated.
Technological change may make human capital more productive,1 or, alternatively,
it may render certain skills obsolete.2 Because technological change affects the
supply and demand of human capital in various ways and possibly in opposite
directions, its effects on the stock of human capital and human capital investment
are ambiguous. For example, some studies (Autor, Katz, & Krueger, 1999; Bartel
& Lichtenberg, 1987; Bartel & Sicherman, 1998; Goldin & Katz, 1998) find that
the effects of technological change on the demand for human capital depend on
whether the new technology complements or substitutes skills. When technology
complements skill, technological progress increases the relative demand for skilled
and educated workers, and hence promotes human capital investment. Technologyskill
substitutability, on the other hand, may decrease the demand for education
and training.3
In this study, technological change is defined as the arrival of new tasks and
techniques that cause the skills associated with older techniques to become obsolete,
as opposed to a general change in total factor productivity (TFP). Although
technological progress has always been an important feature of the American economy,
the introduction and diffusion of new technologies appears to have proceeded
at an especially rapid pace during the past decade.4 The terms “new economy”
and “new paradigm” are invoked repeatedly in popular discussions about the current
American economy. In an economy characterized by increasingly rapid technological
change, understanding how technological change affects human capital
accumulation becomes particularly relevant.