Social classes, demographic transition and economic growth

This paper analyzes the role of the demographic transition in the emergence of sustained economic growth, and shows that these two processes are related. Unlike previous contributions which have focused on the importance of human capital, this paper suggests that capital accumulation, and the existence of different social classes may provide an alternative explanation for the observed pattern of output, fertility rates and wages during the 19th century. The framework presented shows that during the first phase of industrialization, a decline in capital-labor ratio reduces the wage rate and increases the dependency of the family unit on child labor, increasing fertility rates. However, in later phases the increase in the capital-labor ratio, due to the saving of the business elite, reduces the necessity of child labor bringing about the demographic transition.