8. The long, slow trickle down

When a country gets rich for the first time, the wealth does not usually get shared out equally. New found riches usually come from some dramatic breakthrough in one part of the economy; sometimes natural resources like gold or oil, sometimes new technologies like the steam engine. These breakthroughs are normally controlled by a few people, and since most early stage economies work on a “finders-keepers” basis, it is those few people alone who tend to get very rich at first.

So it was in Britain in the early days of the industrial revolution; for most people, the new cotton mills and metalworks probably made life worse, not better at first. But there was, eventually, a long, slow trickle down from the industrial revolution. It took over a century to begin in earnest, but ordinary people did eventually get higher wages, shorter working hours and much longer lives. This story is important, because it can tell us about the circumstances under which economic growth does and does not improve living standards for everyone in society.

* * *

How were the early years of the industrial revolution for the workers in the new mines and factories? In short, their working hours increased dramatically, but their wages did not.

The average working week increased from 51 hours in 1760 to 66 hours by 1800. A sixty-six hour working week! That’s an 11-hour day, perhaps 9am to 8pm, 6 days a week, with just Sunday off to go to church.

But these longer days did not initially yield higher wages. The average worker’s wage barely increased between 1760 and 1800. Wages were still, incredibly, some way below what workers (mainly farm labourers) were paid in the 1400s. It wasn’t until around 1860, 100 years after the revolution began, that there was any significant wage growth. It took until 1882, in the latter part of Queen Victoria’s reign, for wages to exceed their peak in the middle ages*.

These figures are eyewatering. This is what the world of Charles Dickens looks like if you translate it into economic statistics. The chart below** shows what happened, and also continues on to the better times.

So why did wages increase so slowly at the start of the industrial revolution? The best way to look at this is to compare GDP per capita — the total value of the economy per person — to real wages, the part of the economy that gets paid to workers. GDP includes both wages and the returns to capital — the money made by those who invested in all of the new machinery, factories and businesses. The chart below*** shows how they diverged in the 1700s, with GDP per capita in red and wages in purple. The simple story is: the people who owned the capital got richer, the workers did not.

Part of the reason behind this is, no doubt, about the relative economic power of the capital owners and the workers. The capital, and the technology embedded in it, was the big driver behind the industrial revolution, the factor enabling a massive expansion in production. Most of the new industrial work would have been fairly routine, requiring limited skill levels. In the new industrial economy, individual workers were dispensable, machinery was indispensable.

But another very important factor was population growth. The UK’s population jumped from just over 8 million in 1760 to 11.5 million by 1800, before doubling to 22 million by 1850. Most of these new people (including many children) had to find work, having moved off the land and into towns and cities. And so many extra people looking for the same type of work helped keep wages low and working conditions miserable. If you didn’t like the pay or the hours, there was no real alternative. The chart below illustrates this effect quite clearly — it is almost a reverse of the Black Death, where a fall in the population increased wages. You can see that, during periods of rapid population growth, wages have tended to fall relative to GDP per capita, and vice versa. Economic history suggests that workers tend to be worse off when there are too many of them.

But, eventually, things changed. Wages did begin to increase at a healthy rate from the 1860s onwards. From 1860 to 1900, wages increased by 68%, even outpacing GDP per capita growth for the first time since the revolution. Working hours also began a long, steady decline. From a 63 hour week in 1860, the working week shortened to 56 hours by the 1900s, before reaching a much more civilised 46 hours by 1921.

Today, we work an average of 32 hours per week, and our wages are 13 times higher than in 1760. That’s not a bad deal — 13 times the wages for less than half the working hours. So what changed in the Victorian period to finally turn the industrial economy into an engine for improving people’s lives?

Part of it seems to be down to pure economic factors. The rate of economic growth intensified from the 1850s onwards, while population growth slowed slightly, before getting much slower in the 1900s. If the economy grows faster, and workers are more productive, wages should also rise faster.

But a bigger part of the change seems to be linked to the social reforms that characterised the late Victorian period. Through the second half of the 1800s, Britain saw a steady stream of new laws and working practices that gradually improved life for working people.

Child labour, one of the worst practices of early industrial Britain, was gradually curtailed over time, before being banned for under-10s in 1889. Compulsory education for children under 10 was introduced in 1880, before being expanded over time, with the state also beginning to pay for universal schooling.

More leisure time began to creep into workers’ lives. The concept of the weekend emerged, with many factories letting workers finish at 2pm on a Saturday (explains why football matches kick off at 3pm on a Saturday). Many factories also began summer closures, allowing workers to take a week or more’s holiday in the new seaside towns — although paid holidays did not follow until 1938.

Trade unions, which had long been banned and suppressed, began to be legalised in the 1870s. Crucially, trade unions could use collective bargaining to achieve better pay and terms of work. Rather than negotiating with dispensable, individual workers, employers now had to negotiate with an organised workforce, who could potentially shut down their business if they didn’t get their way.

Where the Victorians led, 20th century Britain carried on. Working hours have continued to fall, while most of the increases in wages we enjoy today has happened since the second world war. Capital has also become more widely spread across society, primarily through pensions and home ownership, so the dichotomy of work versus capital does not apply quite so starkly.

We may not quite have reached the 15 hour working week famously envisaged by John Maynard Keynes, but once you factor in our longer retirements, we are not far off. The promise of technology has made our lives better, but it took a century of waiting and another century of bold social reforms to make good on the promise.

* * *

This story has an echo in today’s economy. Wages in Britain have been stagnant since 2008, which is unprecedented since at least the 1850s. Many workers in less skilled jobs face poor working conditions, with long hours, huge pressure and little job security. Meanwhile, capital owners have seen their wealth increase, as shares and house prices have continued to grow. Inequality — between both people and places in Britain — is a sensitive political topic. It has only been like this for a decade, not a century, but today’s economy may look more like the bleak early industrial economy than we’d like to admit. The lessons of the long, slow trickle down and the triumphs of the Victorian social reformers may be worth looking at again.

Technical Notes

* The Peak wage in the Middle Ages was in 1464, at 78% of the real wage in 1900.

** The data here is from the Bank of England’s Millennium of Macro dataset. The wage data is from table A.48, and is adjusted for the cost of living. The hours data is from table A.54.

*** The data is again from the Bank of England’s Millennium of Macro dataset. The wage data is from table A.48, the GDP per capita data from table A.21, and both are adjusted for inflation. Note that the decisive shift between capital and wages seems to come between about 1745 and 1770. Real wages declined (probably linked to a modest bout of inflation), while GDP per capita grew reasonably steadily throughout. The gap opened up during this period and has never fully closed.

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