How Does Industrialization Affect Wages?

Industrialization refers to the process of transformation from an agrarian to an industrial society, when an economy switches from a period of stable-to-little growth to one of accelerating growth.

While wages did eventually grow as a result of industrialization, there are many ways to measure standard of living and it can’t simply be assumed that living standards rose immediately or across the board as a result of wage increases. The relationship between growth in wages and productivity, discussed below, is also more complicated than it might appear, and modern efforts to encourage industrialization throughout the world face challenges such as a reliance on foreign capital and concerns about the impact on climate change. In recent years, questions about deindustrialization and wage stagnation have also cropped up in postindustrial economies.

Wages Before the Industrial Revolution

Before 1800, economies weren’t characterized by rising growth. Depending on which metrics are used to construct the estimate, the standards of living for most people in most societies were either stagnant or grew very slowly. The dynamics that kept wages from rising consistently include a Malthusian “dismal” logic—in which excess growth was used up in feeding a growing population rather than lifting the standards of living—as well as the risk of expropriation.

Notably, some historians point to fluctuations in growth rates, such as in plague-riddled Europe from about 1350-1450, and say that power dynamics within given societies allowed the elites—often landowners or privileged families—to scrape off what excess growth they could to sustain lush lifestyles and to build other hallmarks of civilization that require resources, like art. However, according to mainstream economic analysis, when growth did occur, it flattened out, returned to a stagnant or near-stagnant resting state, and most people did not benefit from the privileges enjoyed by the rich and powerful.

Applying wages as a concept to these time periods can become messy, especially since it requires comparing the relationships of feudal lords, serfs, and villeins (feudal tenants) to merchants and non-agrarian forms of labor. What’s more, places such as the United States relied heavily upon slave labor, which paid out no wages at all for back-breaking work.

The estimates used by historians to construct a narrative matter, if only because they affect the picture of how industrialization has changed society. Real-wage estimates, which look at the wages earned in Britain prior to the Industrial Revolution, show virtually no growth before 1800. Real gross domestic product (GDP) estimates, on the other hand, show slow but consistent growth. The benefits of the increase in productivity before 1800 may have been going to the rich and not the working poor, which may explain the different outcomes for wages versus GDP, according to historians. Alternatively, the working class may have been working longer. There are other possible explanations for this particular observed difference. And much of the productivity that made its way to the bulk of the population led to population growth rather than to improved standards of living.

To qualify somewhat the radical change brought about by industrialization, a few economic historians have noted that employment records at places like St. Paul’s Cathedral, an Anglican church in London, revealed that people were using modern employment practices in Britain about a century before industrialization, even if the growth rate wasn’t as explosive. Some historians say that the vital period for the industrial revolution actually happened much earlier than the 1800s. The economic historian Anton Howes, for instance, says that the 1550s to the 1650s was the crucial century for the industrial revolution because this is when many of the key innovations that would fuel industrialization in Britain—such as an environment where inventions could thrive—came into place.

Impact of the Industrial Revolution

The Industrial Revolution began first in Britain in the 18th century. The process would move Britain’s economy away from the reliance on agriculture and handiwork that had characterized other economies for most of recorded history. New inventions—such as the steam engine, the spinning jenny, and other machines that harnessed energy in productive ways—led to enormous change and shaped the way work was organized. And at the same time in the 1700s and 1800s, the Enclosure Movement, which removed land that working people had used to graze animals and grow food, wound up pushing those workers into factory towns in order to earn a living, increasing the available labor force.

During this period, wage labor also started to become common. As working conditions were often extremely poor, labor movements would ultimately emerge to fight for better conditions in the fast-growing urban areas where people were moving to find work. All these elements made this time a serious turning point in economic history, those who study it explain.

Industrialization spread. First, it crossed the Atlantic Ocean to the United States, where it shaped much of the country by the decades after the Civil War. It would later spread to Western Europe and eventually to other regions. In Latin America, for instance, Brazil and Mexico would industrialize first, after 1870. In Asia, India and Japan underwent a period of industrialization, mostly in the 19th and 20th centuries. China would industrialize later.

During the historical period of industrialization in the west, wages rose. A study of the wages in Britain from 1760 to 1914 in the Journal of Economic History, for example, concluded that the impact on wages was “indisputably favorable” during that time.

Since 1800, western Europe and North America have seen cumulative growth of as much as 1500%, with a consistent growth rate of 1% to 2% per year, according to one account.

Not all types of labor were favored, however. The increases in productivity from historical industrialization slanted wages away from some forms of specialized labor and towards other forms that meshed well with emerging technology. In a study of the effects of industrialization on maritime work, for instance, one author found that the prevalence of the steam engine shifted work away from those with expertise in sails and to those with expertise in engines (in other words, towards engineers). It is important to note, then, that wages during a period of industrialization will not simply grow across the board, but in fact, they will also change the nature of which forms of labor are prioritized.

Early Wage Stagnation and Standards of Living

Growth in the early periods of industrialization in Great Britain may have been slower than is sometimes admitted. Even if it is “indisputable” that wages rose in the long run, most historians think that wages were stagnant for most workers in the early decades of industrialization in Britain.

However, two of the more influential historical estimates hold that real wages did rise in Britain as a result of the Industrial Revolution. Charles Feinstein’s 1998 estimates, for example, show that they rose almost 40% from 1780-1850. Gregory Clark’s estimates for agricultural laborers and builders show that they rose by 50% and 70%, respectively, from 1800-1850.

Those estimates, like many estimates, rely upon real wages. While the rise in real wages has been a common way to argue that industrialization lifts the standards of living for laborers, there are other ways to conceive of standards of living.

Emma Griffin, a prominent British historian, has written that the question of what happened to ordinary people’s wages during the British Industrial Revolution, one of the most studied areas of economic history, has centered itself on the conclusion that wages stagnated in the early period and life worsened across virtually all other measures.

In a 2018 article, Griffin, who relied on hunger as a way to evaluate standards of living, also runs through a list of other measures utilized by economic historians, including child mortality, coffee and tea consumption, family incomes, height, life expectancy, nutrition, well-being, and work intensity. Griffin thinks that the focus on statistical models like real wages has excluded non-statistical historical approaches that would more roundly incorporate the experiences of a broader range of the population. She argues that industrialization fundamentally changed human existence, raising the incomes of industrial families but also making them more disparate, and ultimately “[ushering in] a far more complex, and unequal, society than that which it replaced.”

Even more metrics exist, including homicide rates, the gross national income (GNI), and the Human Development Index (HDI), a measurement system used by the United Nations to evaluate the level of individual human development in each country.

The Economics of Industrialization

Industrialized economies rely on constant growth in productivity. If it is true that industrialization led to an increase in wage labor and productivity, the relationship between the two has been somewhat more complicated, especially in recent decades.

The idea that wages will inevitably rise in an industrialized economy in step with productivity isn’t necessarily true. A review of the reasons why wages and productivity have not grown hand in hand, for instance, concluded that how wealth gets divided up depends on relative worker bargaining power. The reasons workers weren’t rewarded at the level of their productivity included the monopsony power of employers, the fact that younger workers are systematically paid below their productivity level, and that entrepreneurship and human capital are receiving a rising share of national income compared to labor.

A 2021 study from the Economic Policy Institute, a Washington, D.C.–based think tank, charted wage stagnation in the United States, one of the world’s most prominent industrialized nations. According to that study, policy choices have created “disappointing” and “chronically slow” growth in living standards, fueling rising levels of inequality in the United States in recent decades.

Industrialization and the Rise of Income Inequality

Under industrialization, income inequality was already rising. For example, a 2016 study of the coastal regions of northwestern Europe by historian Wouter Ryckbosch, Ph.D., of the Brussels Centre for Urban Studies, found that inequality had risen in the centuries before industrialization and during it, although it would be simplistic to blame it simply on industrialization. According to Ryckbosch’s analysis, the levels of inequality were caused primarily by a concentration of capital and a fall in wages (compared to the average income at the time).

Capital concentration wasn’t endemic to pre-industrial economies. Rather, institutional changes in the early modern period “dismantled” or replaced protections for labor from the medieval period with ones more favorable to property rights, and then fortified these institutions with regressive taxation, Ryckbosch found. From the Late Middle Ages until the end of the 19th century, inequality climbed.

From a more recent perspective, think tanks like the Economic Policy Institute have suggested that unions were successful in promoting rising wages for union workers in the U.S. in the three decades after World War II, reining in inequality, even though union power was limited in some ways. However, the decades following that period saw the emergence of “too big to fail” corporations and Ronald Reagan’s union-busting, and eventually unions receded. As unions have weakened, inequality has risen.

Income inequality has become a defining problem of the 21st century.

Advanced industrial economies have seen deindustrialization in recent decades, which has skyrocketed inequality and made it harder for some workers to get well-paying jobs. These economies have also witnessed a rise in unemployment, the disappearance of unions, and other factors such as the rise of single-parent households, which researchers say have swollen inequality further.

The historical periods of industrialization have also led to differing levels of development around the world, and nations still looking to industrialize must overcome steep hurdles. 

Most calls for development are now focused on the use of clean energy with an eye on how it will affect climate change. A lot of scholarship in recent years has connected industrialization to the overreliance of the world economy on fossil fuels such as coal and petroleum. This has been a problem in particular with the industrialization of East Asian countries, where economic development led to air pollution, deforestation, a lack of adequate waste-disposal facilities, and other environmental issues. Newer models of economic development have tried to shift developing economies to clean energy sources to combat emissions and other climate negatives that come with industrialization.

Efforts to promote industrialization in Africa and other areas with low levels of economic development have also faced the problem of a lack of adequate local capital, a problem not faced by the early economies that underwent industrialization. Because of this, these areas have become overly dependent on foreign capital to finance industrialization, leading to predatory debt, among other problems.

The Bottom Line

In the 21st century, the world exists as a global economy, with many developed countries now described as “post-industrial,” having lost industrial jobs. Much of the world’s manufacturing has shifted from developed nations to less developed ones, arguably creating a new form of industrial colonization where standards of living and wages remain vastly lower in developing countries than in developed ones.

Another concern related to industrialization is the inequality that it has created—a much greater magnitude of worldwide inequality than existed under the agrarian world economic models.