The past shows: A shortage of labor stimulates technical progress. This gives hope for the future. More thoughts are revealed in the article from “Fazit” - the economics blog of the Frankfurter Allgemeine Zeitung.

This article by Gerald Braunberger was originally published in the «Frankfurter Allgemeine Zeitung» in German on 31 December 2022. Translated and edited for layout purposes by the UBS Center.

The relationship between technical progress and the labor market has been an important area of research in economics for a very long time. The renowned British economist David Ricardo already raised the "machine problem" about two centuries ago: Does technical progress create or destroy jobs? But the reverse causality also deserves attention: Does the state of the labor market influence technical progress? Indeed, it would be interesting to see whether technical progress benefits from demographic change that is simultaneous with the exit of extremely large cohorts from the labor market.

An exciting paper by Hans-Joachim Voth, Bruno Caprettini and Alex Trew looks at the situation when Ricardo was writing. The three economists show an interesting connection between a shortage of labor and labor-saving technical progress. During the Napoleonic Wars, large numbers of agricultural laborers were conscripted into the British Navy. In the form of anecdotal evidence, the connection between labor supply and technical advances was no secret even at the time. "A considerable number of threshing machines have been erected in this district," read an 1812 report from Dorset. "The chief inducement to their use is a scarcity of labor, which may be expected in time of war, especially in coastal regions."

The work of the three authors confirms another assumption, which is also not far-fetched. Technical progress was more successful with higher professional qualifications in the remaining labor force: "At sites where young men were trained as blacksmiths, watchmakers, and millwrights, a shortage of labor led to a much greater use of technical progress than at sites without such specialists."

The spread of the threshing machine seems very instructive as an example. Threshing was one of the most labor-intensive activities in the winter months at the time. It is probably no coincidence that the threshing machine was invented in the northern part of Great Britain, where agricultural wages were higher than in the south of the country. The first threshing machines were as expensive and prone to breakdown. But they became more reliable over time. In conjunction with the enlistment of many agricultural workers in the military, they gradually spread throughout the country. It is interesting to note that the introduction of the threshing machine was accompanied using significantly less labor, but the wages of the remaining workers apparently did not decrease.

Of course, the labor-saving technical progress of the time was not limited to threshing machines. Horse hoes allowed for more efficient weed control, while horse rakes facilitated the processing of hay into bales. It is estimated that one horse rake did the work of 20 men. In addition, technical progress also existed that was not accompanied by labor savings and is therefore of less interest here. Beet cutters, scouring machines, and cake breakers facilitated fodder production.

From 1793 to 1815, except for a brief period, Britain was consistently at war with France. At the height of hostilities in 1813, the British had more than 350,000 men under arms, including about 160,000 in the navy. The vast majority of the enlisted men in the army consisted of day laborers, criminals, and vagrants, but the navy needed men who could handle themselves at sea.

The navy therefore liked to recruit around the ports located in its vicinity. For many of these port regions, information on the labor market and the use of technical progress in agriculture is now available using information from local newspapers. The exploration of a relationship between naval recruitment and the adoption of technical progress in coastal British agriculture thus seems possible thanks to a sufficient amount of data. For example, the data set the authors used records 95,014 seamen who served on 262 ships. No other country maintained similarly large naval forces at the time as did the British.

The story did not end after the victory over Napoleon with the return of many soldiers to their fields. The machines that had been introduced in the meantime remained in operation. They continued to be used and contributed to further savings in human labor. "Ongoing improvements in efficiency (and reliability) were one reason," the authors write.

Their work deserves interest regarding the study of the history of the Industrial Revolution. It is undisputed that industrialization began in England. But a great deal has been written over many decades about exactly when it began and why it first developed in England. One important question that needs answering is that of the determinants of technical progress; from an economic point of view, the timing of an invention is less important than the timing of its economic exploitation.

Ideally, there are two competing explanations for the development of England. According to the economic historian Robert C. Allen, the Industrial Revolution began in England in the 18th century because the use of machines there was worthwhile in view of high wages and low energy costs. The economic historian Joel Mokyr argues for a more culturally influenced explanation. He proposes that the close proximity of scientists, tinkerers, and craftsmen in England, which was not possible elsewhere, set the industrial revolution in motion and drove it forward.

The work of Voth, Caprettini, and Trew combines these two approaches. Technical progress benefited from a scarcity of labor and took place where it was materially worthwhile. At the same time, this development benefited tinkerers and skilled craftsmen who worked with the new machines and further developed them.

However, this work of economic history can also be used as an incentive for our time. The increasingly noticeable scarcity of labor can awaken forces that will ensure prosperity in the future through further technical progress.

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