Authors: Alessandro Brioschi (Queen’s University Belfast) and Mattia Fochesato (Bocconi University)
Why did income inequality vary in pre-industrial Europe? What affected the returns to human capital formation? How did geographic, institutional, demographic, and economic factors interplay in the determination of the wage differentials?
Economic historians have long debated the factors that drove differences in wage structures before industrialisation. One key measure is the skill premium—the ratio of skilled to unskilled wages, which economic historians have approached from two complementary angles. On the one hand, the skill premium is seen as a proxy for returns to human capital accumulation. In this view, a higher skill premium suggests that investments in education and training yield substantial economic rewards, signaling the benefits of acquiring specialized skills. On the other hand, the skill premium also serves as an indicator of wage inequality in the labour market, reflecting the divergence in earnings between different segments of the workforce.
In our recent article (link), we revisit these two interpretations using a new dataset that covers 20 European cities between 1400 and 1800, allowing us to investigate how long-term structural factors influenced both the returns to human capital and the degree of wage disparity. While previous research has focused on institutional factors or demographic changes, our results highlight the role played by geography and rural-urban dynamics in driving the wage premium paid to skilled workers.
Our findings show that cities with better market access (e.g., proximity to coastlines or navigable rivers) had lower skilled-to-unskilled wage ratios. Similarly, urban centres surrounded by more productive rural hinterlands also exhibited lower wage gaps, as higher salaries for unskilled workers in the rural areas raised the fallback wages for unskilled labourers, forcing urban employers to offer higher urban salaries to keep the unskilled labourers in the urban sector.
Market access and rural-urban dynamics
One of the most important findings of our study is the significant role of geography in shaping wage dynamics. The analysis demonstrates that cities with better market access, proxied by the closedness to coastlines and navigable rivers, tended to have lower wage gaps. They were more effectively integrated into emerging trade networks, which boosted their manufacturing sectors and increased their demand for unskilled labour. At the same time, the demand of skilled labour was inelastic to market access, as the size of this component of the labour force did not affect the supply of manufacturing goods as much as it was affected by the quantity of unskilled labour employed. Therefore, in better connected and more economically active urban economies of Western Europe in pre-industrial times, the skilled-to-unskilled wage ratio was lower than in the less productive areas.
A second result concerns the influence of rural hinterlands. Urban centres surrounded by more productive rural areas might have led to better economic opportunities for urban unskilled workers who were more likely to move between the urban and rural sectors. The increase in economic opportunities for unskilled workers might have induced urban employers to raise their wages to attract or keep them in the city, with an overall negative effect on the skill premium. The dynamic suggests that the economic vitality of rural regions played a direct role in moderating wage inequality in urban settings.
Although we acknowledge that more detailed research is needed on the role played by institutional and demographic factors, our findings point to a broader narrative: rural-urban dynamics and market access were crucial in shaping the evolution of early modern economies. In regions where these connections were strong, the resulting economic environment was characterized by relatively balanced wage structures, due to the positive role played by these two factors in increasing the wages of unskilled labourers. Such structural characteristics likely helped to reduce wage inequality in their urban labour markets and, at the same time, contributed to the onset of their economic development, which marked their divergence from other regions of the continent.
Our research offers important insights for contemporary debates on regional economic development and inequality. While modern discussions frequently focus on technological change and globalisation, the historical evidence reminds us that structural factors—such as geographic connectivity and rural-urban dynamics—have long influenced labour market outcomes. For policymakers and economic historians alike, recognising these deep-rooted influences is key to understanding past and present economic disparities.