The role of human capital formation in the transition to modern economic growth, 1300-1900

Abstract

Economic models of the Industrial Revolution increasingly emphasize the key role of human capital in promoting economic growth, and empirical studies have shown that education is a strong predictor of per capita GDP. Contrary to the theory, however, economic historians have described the role of human capital in the English Industrial Revolution as minor: there was not much improvement in male literacy between 1750 and 1850, and primary school enrolment rates were rather modest by international standards. The conclusion that human capital did not play an important role in the British Industrial Revolution draws upon records of school enrolment and literacy. Literacy rates are likely to underestimate the level of human capital as they only proxy primary schooling (reading and writing abilities) and enrolment rates do not take into account the age structure of the population. What is more, by largely focussing on the period after 1750, these measures are expected to understate the growth of literacy, and that of schooling in general, which occurred in the centuries leading up to the Industrial Revolution. In my thesis I have introduced new data capturing the evolution of human capital formation in Europe and England over the very long run to reconsider previous conclusions on the human capital to economic growth relationship. To address this issue systematically, I have first of all measured the contribution of human capital to early modern growth, for which it was required to focus on trends of growth in pre-industrial Europe. It is argued that the economies of the Low Countries and England showed a lot of progress between 1300 and 1800, whilst the economies of countries on the Continent stagnated after ca. 1500. As a second step, I have focussed on the human capital to growth relationship in England during the period of its industrialisation. England was the first country that made the transition from agriculture to industry, which made it a highly relevant case. In doing so I introduced three proxies for human capital formation: formal schooling (average years of schooling), working skills (the share of unskilled workers used for production), and‘highly-skilled workmen’ (the share of engineers, mechanics, wrights, instrument makers, chemists). The main findings are that human capital formation was an important driver of the ‘Little Divergence’. Increases in human capital formation did contribute to economic growth in Holland and England between 1300 and 1900. During the period of the Industrial Revolution itself, the relationship was clearly negative. There was a decrease in average years of schooling after ca. 1740 and there was an increase in the share of unskilled workers. At the same time, there was an increase in the share of ‘highly-skilled workmen’.These well-educated workers, comprising up to ca. 3-5 per cent of the work force, supported innovation and provided a major contribution to the spread and consolidation of the Industrial Revolution. It is therefore likely that the technological inventions of the Industrial Revolution were skills saving and skill using at the same time.