Pessimism and prosperity

NWO VICI project 2013-2018, nr. 277-53-005, H.J. de Jong

How much better is life today than in the past? And do we always need growth to produce welfare? This project develops a new research avenue that uses broad indicators of human welfare and the standard of living to measure levels and growth of economic well-being during the biggest crisis that hit European society in modern times: the wars and depression of the first half of the twentieth century. Europe's long depression was an era with paradoxical outcomes in economic performance and human welfare. Between 1913 and 1950 income growth of European nations as conventionally measured by gross domestic product per capita was very low. But at the same time Europeans became healthier, taller, and older, and enjoyed increasing leisure time. Historical research into the human condition and level of living has revealed considerable growth trends in the general biological standard of living of European citizens. To understand this paradox, we need to re-examine and analyse indicators of the human condition such as economic living standards and broader human development standards.

Working Hours and the Rise of Leisure

Working time and leisure time are a central concern of any attempt to evaluate well-being. As the OECD correctly note in the flagship ‘How was Life’ publication, working hours and time off work is central to work-life balance. We created a completely new dataset on the length of the working week in manufacturing globally from 1820-2010. It contains over 4,300 observations and covers 120 countries or political units. This sectoral focus allows us to ensure that the data is broadly comparable between countries and over time.

One strong finding of this new dataset, is that there was a reduction in hours in the immediate aftermath of the First World War that was of a magnitude incomparable with every change in working time before or since. Although often referred to in qualitative social history, this change was completely invisible in previously available panel datasets as they only provide point estimates for 1900, 1913 and 1929, completely skipping over the 1919-1920 period.

Life expectancy and health

Another major contribution was the creation of an internationally comparable dataset on health indicators, which we used to assess the evolution of health during the period 1900-1950. Our new dataset covers a large number of European and non-European countries on a number of indicators: life expectancy at birth, infant mortality rates, child mortality rates and life tables. We then developed a framework to put together different dimensions of well-being and make sense of their different trends during this period in a comparable way. To do this, we used a utility framework drawing on Jones and Klenow (AER 2016) and have applied it to the period of interest.

Furthermore, we used a large number of sources to create a dataset on capital investment series reaching back until the 19th century. This dataset provides a new and reliable source for physical capital estimates at the beginning of the 20th century, and is a necessary input for the study on the impact of health on productivity. In a pioneering analysis based on this dataset, we show that the current consensus among economists – that total factor productivity is the most important element in explaining cross-country differences in productivity – does not hold in the past. The new findings show that factor accumulation (i.e. physical and human capital) was at least as important as productivity for understanding why some countries produced more output than others.

Welfare distribution and inequality

A major finding of this sub project is that the drop in inequality was neither steady nor similar across European countries. We built the first “dynamic” social tables for several European countries. Social tables provide a concise and complete description of the social structure by combining data on the number of people belonging to different social groups – or classes- and the estimated average incomes that can be linked to these groups. Based on these social tables, we obtained direct estimates of inequality and its drivers for Britain, Germany, Bulgaria and the Czech Lands/Czechoslovakia on an annual basis between 1900 and 1950.

Britain and Germany’s respective Gini coefficients show contrasting trends. The fall of inequality in Germany was interrupted during the First World War and the Nazi period, while in Britain the reversal occurred between the end of First World War and the Great Depression. Variation in inequality over time in Eastern Europe also supports our finding that inequality moved in cycles. Our findings question the idea of a Great Levelling in Europe during the twentieth century. Furthermore, we measured the contribution of the different components of inequality changes, such as the ratio between property and labour incomes, variations in labour earnings and skill premiums, and gender pay inequalities.

Publications

• Banerjee, R, R. Inklaar and H. de Jong (2021). “Proximate Sources of Growth since 1870: Capital and Technology, in S.N. Broadberry and K. Fukao (ed.) The Cambridge Economic History of the Modern World. Cambridge University Press pp. 356-381
• Bolt, J, R. Inklaar, H. de Jong and J. L. van Zanden (2018). “Rebasing ‘Maddison’: new income comparisons and the shape of long-run economic development”. (GGDC Research Memorandum; Vol. GD-174). Groningen: Groningen Growth and Development Centre. See also; https://voxeu.org/article/rebasing-maddison
• Gallardo-Albarrán, D. (2018). Health, Well-being and Inequality over the Long Term. Groningen, Theses in Economics and Business.
• Gallardo-Albarrán, D. (2019). “Missed opportunities? Human welfare in Western Europe and the United States, 1913-1950”. Explorations in Economic History 72, pp. 57-73
• Gallardo-Albarrán, D. “Health and economic development since 1900”. Economics & Human Biology 31, pp. 228-237
• Gallardo-Albarrán, D. (forthcoming). “Sanitary infrastructures and the decline of mortality in Germany, 1877-1913”. Economic History Review
• Gallardo Albarrán, D., and H.de Jong (2019). “Health and Wealth in the 20^th Century: Implications for Today”. Scientia Vol. 126, pp. 20-23.
• Gallardo Albarrán, D. and H. de Jong (2021). “Optimism or Pessimism? A composite view on English living standards during the industrial revolution”. European Review of Economic History, 25, (1), pp. 1-19.
• Gilmore, O. (2019). “A 4-day week for Ireland? A report on the feasibility of a four-day working week in Ireland.” Fourdayweek, Forsa trade Union.
• Gilmore, O. (forthcoming). “The Working Week in Manufacturing since 1820”, in J.L. van Zanden (ed.) How was Life, vol.2 (OECD, Paris).
• Gómez Léon, M. and H. de Jong (2019), “Inequality in turbulent times: income distribution in Germany and Britain, 1900–50”. The Economic History Review, Vol. 72, no. 3, pp. 1073-1098.
• Jong, H.J. de (2015). “Living Standards in a Modernizing World. A Long-Run Perspective on Material Wellbeing and Human Development,” In W. Glatzer, L. Camfield, V. Moller and M. Rojas (eds.), Global Handbook of Quality of Life. Explorations of Well-Being of Nations and Continents, Dordrecht, Springer, pp. 45-74.
• Jong, H. de (2019). “Health and human welfare in the 20th century: Escaping early death, poverty and poor health”. Open Access Government 24, pp. 226-227.
• Jong, Herman de, and Stefan Nikolic (2018). Neutral economies during World War I, in S.N. Broadberry and M. Harrison (eds.), The Economics of the Great War: A Centennial Perspective. CEPR Press, pp. 109-116
• Jong, Herman de, and Nuno Palma (2018), ‘Historical National Accounting’, in Matthias Blum and Christopher L. Colvin (eds.), An Economist’s Guide to Economic History. Palgrave Studies in Economic History, Palgrave Macmillan, Springer, pp. 395-403.
• Ma, Y. & H. de Jong (2019). “Unfolding the Turbulent Century: A Reconstruction of China’s Historical National Accounts, 1840-1912”, The Review of Income and Wealth, Vol. 65, no.1, pp. 75-98.
• Veenstra, J. & de Jong, H. (2016). “A Tale of Two Tails: Establishment Size and Labour Productivity in United States and German Manufacturing at the Start of the Twentieth Century”, Australian Economic History Review vol 56, no. 2 (June), pp. 198-220.