Malthusian regime: Introduction 5

New technology will create a demand for the ability to analyze and evaluate new production possibilities, which will raise the return to education. Schultz (1975) cites a wide range of evidence in support of this theory. Similarly, Foster and Rosenzweig (1996) find that technological change during the green revolution in India raised the return to schooling, and that school enrollment rates responded positively to this higher return. Such an effect would be a natural explanation for the dramatic rise in schooling in Europe over the course of the 19th century.

The effect of technology on the return to human capital in which we are most interested is the short run impact of a new technology. In the long run, technologies may either be “skill biased” or “skill saving.” But we would argue that the introduction of new technologies is mostly skill biased.10 For example, Williamson (1985; Table 3.7) concludes that early industrialization raised the return to skills. The ratio of average wages of skilled workers to unskilled workers in Britain rose from 2.45 in 1815 to 3.77 in 1851, whereas the 60 years after 1851 saw a significant reduction in wage inequality. If technological changes are skill-biased in the long run, then the effect on which we focus will be enhanced, while if technology is skill-saving then our effect will be diluted.

The second piece of the model is more straightforward: the choice of parents regarding the education level of their children has implication for the speed of technological progress. Children with high levels of human capital are in turn more likely to advance the technological frontier. For example, Cameron (1989) finds a high correlation between the level of education and the speed of industrialization in Nineteenth century Europe.

We also allow the overall size of the population to positively influence the growth rate of technology, as in Kremer (1993) and Jones (1995).

The final piece of our model is the most Classical: as population rises, the land to population ratio falls, and the wage falls. If technology is static, then the size of the population is self-equilibrating. But technological progress can undo this mechanism, allowing wages to rise.

The model produces a Malthusian “pseudo steady state” that will be stable over long periods of time, but will vanish endogenously in the long run. In this Malthusian regime output per capita is stationary Technology progresses only slowly, and is reflected in proportional increases in output and population. Shocks to the land to labor ratio will induce temporary changes in the real wage and fertility, which will in turn drive income per capita back to its stationary, equilibrium level. Because technological progress is slow, the return to human capital is low, and so parents have little incentive to substitute child quality for quantity.

The key effect which makes the Malthusian pseudo steady state vanish in the long run is the impact of population size on the rate of technological progress. At a sufficiently high level of population, the rate of population-induced technological progress will be high enough that parents will find it optimal to provide their children with some human capital. At this point, a virtuous circle develops: higher human capital raises technological progress, which in turn raises the value of human capital.

Increased technological progress initially has two effects on population growth. On the one hand, improved technology eases households’ budget constraints, allowing them to spend more resources on raising children. On the other hand, it induces a reallocation of these increased resources toward child quality. In the Post-Malthusian regime, the former effect dominates, and so population growth rises. Eventually, however, more rapid technological progress due to the increase in the level of human capital triggers a demographic transition: wages and the return to child quality continue to rise, the shift away from child quantity becomes more significant, and population growth declines.