In the early decades of Britain's industrial revolution, output per worker rose while real wages stagnated, so the gains went to profits.
Allen named it in 2009 after Engels's Condition of the Working Class in England (1845). Using reconstructed series for roughly 1790 to 1840, he found output per worker rising while real wages barely moved and the profit share climbing; wages began to follow productivity only after about 1840.
In practice
- A factory doubles its output with new machinery, and its operators' pay stays where it was for a decade.
- Economists arguing about whether new automation will raise wages cite the pause as the precedent for a long delay.
- Possible explanations
- One explanation is that new technology displaced skilled labour faster than it created new demand for workers. Another is that industrial expansion was financed from profits, so a rising profit share was how accumulation paid for itself until capital became plentiful.
- In its favour
- Rests on reconstructed wage and output series and is widely cited in economic history; it offers a concrete case of technology raising output for a generation without raising wages.
- Against it
- Wage and price data for the period are uncertain, and other historians estimate some real wage growth before 1840. How far the pattern generalises beyond early industrial Britain is debated.
- Standing
- Disputed in its measurement rather than its existence. Compare the productivity paradox and Piketty's r > g inequality.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The regularities money obeys