The Knowledge Economy at the Turn of the Twentieth Century: The Emergence of Hierarchies

We use a simplified version of Garicano and Rossi-Hansberg (2005) to understand the impact of improvements in communications technology at the turn of the twentieth century on wages and organization. Improvements in communication technology allow individuals of different skills to abandon self-employment and form teams with each other. In particular, they allow high-skill agents to leverage their knowledge by specializing in the hardest tasks and hiring low-skill agents to do the routine tasks. Organization then exploits the complementarities between individual skills, which in turn affects the distribution of earnings. (JEL: D2, J3, L2, N3) (c) 2006 by the European Economic Association.