Abstract
Between 1500 and 1800 the literacy rate in England increased from 5% to 50%. In the same period the share of employment in agriculture decreased from 75% to 35%. Despite these structural changes, which one would associate with economic development, average wage diminished during this period, around 20%. Neither a Malthusian model nor a Solow model with neutral technological change can account for these facts simultaneously. We present a production model with two sectors, agricultural and non- gricultural, and four inputs of production: skilled (literate) labor, unskilled (illiterate) labor, capital, and land. We assume CES production functions for each sector, and measure, using prices and quantities, the efficiency path for each input. We find strong biased technological changes. Moreover, for the period between 1600 and 1860, we can identify three subperiods (1600-1750, 1750-1810, and 1810-1860) where the biases turn direction abruptly. Regardless of the sector, the relative efficiency of literate to illiterate labor increased in the first and last period, and decreased in the middle period. The opposite happened to the efficiency of capital. The efficiency of land increased for all three periods, despite a slowdown in the middle period. We extend the model with a household sector where agents choose the production sector in which they want towork, how much to invest in capital, and if they want to acquire literacy or not. We simulate the model inputting the measured changes in technology, and measured exogenous paths for population and the price of literacy. By construction, the model accounts for most of the variation in the data. We then use the model to look at counterfactual scenarios, discussing the partial effects of population and technology growth.