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Van Zanden Long Run Skill Premiums

Van Zanden Long Run Skill Premiums

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Published by Ronan Lyons
The skill premium and the ‘Great Divergence’ by Jan Luiten van Zanden (IISG/University of Utrecht)
The paper studies the long-term development of the skill premium of construction workers in Europe in a global perspective. It shows that this price of human capital declined sharply between ca 1350 and 1450, and, in particular in the North Sea region, remained on a relatively low level since. It is also demonstrated that in other parts of Eurasia – with the possible exception of parts of China – the skill premium was much higher than in Europe.
The skill premium and the ‘Great Divergence’ by Jan Luiten van Zanden (IISG/University of Utrecht)
The paper studies the long-term development of the skill premium of construction workers in Europe in a global perspective. It shows that this price of human capital declined sharply between ca 1350 and 1450, and, in particular in the North Sea region, remained on a relatively low level since. It is also demonstrated that in other parts of Eurasia – with the possible exception of parts of China – the skill premium was much higher than in Europe.

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Published by: Ronan Lyons on Jul 01, 2009
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09/25/2010

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1The skill premium and the ‘Great Divergence’
1
 Jan Luiten van ZandenIISG/University of UtrechtSummaryThe paper studies the long-term development of the skill premium of constructionworkers in Europe in a global perspective. It shows that this price of human capitaldeclined sharply between ca 1350 and 1450, and, in particular in the North Sea region,remained on a relatively low level since. It is also demonstrated that in other parts of Eurasia – with the possible exception of parts of China – the skill premium was muchhigher than in Europe. These developments and regional patterns are explained usinginsights from human capital theory, focussing on the role played by interest rates and bythe efficiency of institutions for the training of apprentices. It is argued that the low skillpremium characteristic of western Europe in the early modern period is the result of favourable conditions for human capital formation in general, and that high levels of human capital formation in early modern Europe help to explain the ‘Great Divergence’between Europe and the rest of Eurasia during the 19
th
century.
 
2 
I
Relative prices are the DNA-prints of an economy. They are basic units of informationthat reflect and define its structural features. In particular in the period before the mid19
th
century, when other sources of information (such as historical national accounts)are relatively difficult to acquire and subject to large margins of error, relative pricesand wages are crucial sources of information about the structure of the economy and itslevel of development.The study of relative prices should therefore allow us to understand more fullythe backgrounds and the dynamics of the ‘Great Divergence’ that occurred in thecentury after the Industrial Revolution. Was the exceptional performance of theEuropean economy after about 1780 a more or less accidental by-product of developments occurring during these decades, such as the rise of steam power, or theresult of patterns of economic change which began many centuries before the 1780s –perhaps already during the Middle Ages? The traditional view on this, shared by DavidLandes, Eric Jones, Immanuel Wallerstein and Angus Maddison, is that the roots of European uniqueness are to be found already in the (late) Middle Ages. Maddison hasproduced estimates of the development of GDP per capita that are consistent with suchan interpretation, showing that already around 1800 Europe was much more developedthan the rest of the world. More recently however, Kenneth Pomeranz developed theargument that until the middle of the 18
th
century, Western European levels of incomeand welfare did not differ in a fundamental way from those in China and Japan (andperhaps India), and that the ‘Great Divergence’ therefore occurred in the centuries after
 
31750 (or perhaps even 1800). More importantly perhaps, he also argued that thisdivergence was not the product of fundamental differences between the two parts of Eurasia, but the to some extent fortuitous by-product of a developments whichhappened to take place in Western Europe during the 18
th
century: easy access to coal(at the right places), and the fact a few countries in Western Europe controlled hugecolonies.
2
 A team of scholars led by Peter Lindert has recently been put together to find outif the study of relative prices and wages can contribute to this discussion. A first andhighly preliminary results of the ‘global history of prices and incomes’ presented inBuenos Aires in 2002, suggested that already during the Early Modern Period thestructure of relative prices in North-western Europe was distinctive in a number of respects. Lindert et.al. formulated the working hypothesis that ‘Northwest Europe led inthe development of non-agricultural productivity concentrated in the capital-goods andknowledge-intensive sectors’. The paper hypothesized that capital goods and knowledgeintensive products were relatively cheap in this part of the world (and interest rates wererelatively low), whereas foodstuffs/agricultural products (and land) were relativelyexpensive there.
3
 This article investigates one aspect of this broader hypothesis, namelyconcerning the remuneration of human capital. It tries to elaborate the Lindert et.al ideathat northwest Europe had a comparative advantage in knowledge intensive sectors bylooking at the long-term development of the skill premium in Europe and parts of Asia.It takes a rather limited view at this ‘skill premium’ by focusing on the difference indaily wages between skilled craftsmen (carpenters and masons) and unskilled labourersin the construction industry, a skill premium about which we are relatively wellinformed. An added advantage of this skill premium is that technological change in the

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