Falling Real Wages During an Industrial Revolution
Universitat Pompeu Fabra Economics working paper 195
25 Pages Posted: 28 Apr 1997
Date Written: OCTOBER 1996
The paper shows that the emergence of a relatively more capital intensive, "industrial" production sector with relatively faster total factor productivity growth than the existing less capital intensive, "cottage" production sector will always slow down real wage growth if capital and labor are imperfect substitutes. Real wages will actually fall temporarily if the industrial production sector experiences sufficiently fast total factor productivity growth. This conclusion does not depend on the effect of technological change on the labor demand of industrial firms: Rapid technological change could, in particular, rapidly increase the labor demand of industrial firms, and real wages would still fall.
JEL Classification: D5, N1, O1, O3
Suggested Citation: Suggested Citation