Falling Real Wages During an Industrial Revolution

Abstract

The Industrial Revolution was characterized by technological progress and an increasing capital intensity. Why did real wages stagnate or fall in the beginning? I answer this question by modeling the Industrial Revolution as the introduction of a relatively more capital intensive production method in a standard neoclassical framework. I show that {\sl real wages fall in the beginning of an industrial revolution if and only if technological progress in the relatively more capital intensive sector is relatively fast.}