It is common knowledge that most citizens living in countries that have industrialized lead relatively prosperous lives today, as measured by their levels of income, consumption, happiness, life expectancy or education. This suggests that rapid technological change and the movement of workers from agriculture to industry have had a positive impact on populations, an idea that is often implicit in many narratives of economic growth over the long term. However, rising material living standards were not necessarily followed by improvements in other important aspects of life, such as workers’ health or working time. Our research highlights how this paradox complicates assessments of human welfare (or well-being) and applies a new metric to the case of England during its early industrialization phase.
England is perhaps one of the most iconic cases of deep economic and societal change during industrialization. In the mid-18th century, this country was the first to witness a gradual and sustained process of technological advances in manufacturing that started with the improvement and widespread adoption of the steam engine, mechanical spinning and smelting iron with coke. This process of creative destruction (replacing old ideas with new and more productive ones) gradually led to productivity improvements in some sectors of the economy that would slowly trickle down to society in the form of higher wages. Indeed, the table below shows clear improvements in material living standards between 1800 and 1850, as measured by average wages for the working class. At the same time, annual working time increased from (roughly) 2,500 to 3,200 hours during the considered period, and income inequality, as expressed by the Gini coefficient, rapidly grew until 1800. After that, it remained at a high level. Interestingly, the evolution of health among the English population was improving until 1800 as life expectancy at birth rose by 5 years, but then stagnated (read more about this here, at our blog).
How can we make sense of health improvements not keeping up with incomes? Can we conclude that the English population was better off by 1850 based on life expectancy and real wage data? Or do changes in working time and inequality offset any changes in health and income? There is quite some disagreement about these questions among researchers. Part of the reason is that focusing on some individual aspects of people’s well-being does not provide entirely conclusive evidence, as revealed by the four indicators of living standards in the previous table. In this case, it may be preferable to employ an aggregating procedure that considers multiple dimensions of well-being. One well-known approach is that of the Human Development Index, a composite index created by the United Nations. However, this indicator suffers from omitting some key aspects of worker’s lives during industrialization, such as working time or inequality.
A new approach to measure human welfare
Our research takes an alternative approach to most of the literature. We use standard economic theory to create an indicator of human welfare that puts together annual income, life expectancy, annual working time and income inequality. We think these four dimensions are critical to understand the evolution of English citizens’ welfare during industrialization. For instance, the writings of social reformers and thinkers, such as Karl Marx, show deep concerns about the accumulation of capital and profits in the hands of industrialists, while workers earned barely enough to make ends meet. Friedrich Engels lamented the long working hours of children and adults, which led to stress, neglect of children, and inadequate health conditions. Concerning health, 19th-century surveys on the social and environmental conditions of the poor highlighted the social costs of economic progress and the need for public action.
The results of our aggregate measure indicate that the lives of the English population evolved very differently before and after 1800 (see table below). Beginning with 1760-1800, we find that although material living standards worsened (row A, column II) – real wages declined by almost 0.3 percentage points per year – health gains contributed substantially to overall welfare growth (row B, column II). In fact, the 5-year increase in life expectancy offset the welfare losses stemming from declining purchasing power. Stopping here would convey a positive view of changing living standards pre-1800, however we also need to consider the negative impact of longer working hours and rising inequality. If we do this, we can conclude that human welfare shrunk between 1760 and 1800, by about 0.3 percentage points annually. After 1800 we detect a very different pattern, as rising working time and inequality stopped (rows C and D, column III). Most importantly, rising wages take the lead and, despite health stagnating during the first half of the 19th century, individuals overall become better off by 1850 by 0.7 percentage points annually. Finally, if we turn to our findings for the whole period (1760-1850), we observe that focusing on wages exclusively underestimates the full extent of improvements in broader well-being by 1850. Indeed, our calculations show that health improvements added to overall welfare more than material living standards.
Gross Domestic Product (GDP) per capita is often used in comparisons of living standards across countries and time. Therefore, it is interesting to compare its development for England during the analyzed period with that of our welfare metric. From this comparison, two points stand out. First, unlike our results above, GDP per capita suggests that citizens’ economic lives had slightly improved by 1800. Second, although both metrics agree that the welfare of the population improved between 1760 and 1850, GDP per capita shows that the extent of this improvement was larger than our composite metric (i.e. a fifth less than suggested by GDP). From these two points, we conclude that GDP per capita overestimates gains in human welfare throughout the period and should be interpreted with caution. Also, we make comparisons with other widely-used measures of living standards and find that previous studies using composite measures of living standards are overly optimistic regarding pre-1800 trends. These do not fully take into account the negative impact of rising annual working time and increasing income inequality.
Moving beyond GDP to understand long-run living standards
We acknowledge that our composite approach does not measure other critical dimensions of people’s social and economic lives at the time, such as educational attainment and its positive effect on people’s personal and professional development; environmental damage to rivers and air pollution; or the impact of the factory system on people’s working culture and daily lives. We speculate that if we were to take these into account, our main point would remain: workers’ lives did not improve drastically until the post-1850 period when the productivity gains of the new economic system trickled down further to the working classes and poor health and living conditions gradually improved.
Our research has implications for current assessments of progress during phases of rapid economic change. We show that to understand the manifold consequences of industrialization we need a theoretically grounded framework that puts all welfare relevant dimensions together, because their individual analysis will not yield one-sided results. Also, this procedure is informative for identifying which aspects of human welfare deserve special attention, such as health. Finally, we think our exercise sheds light on why some countries have profited much more than others from economic modernization, a process that is better understood by going beyond measures of material living standards.
Assistant Professor (Wageningen University)
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Professor of Economic History (Groningen University)
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