Agricultural Employment and the Economic Transition from Malthus to Solow

Abstract

We develop a simple model where the final output is produced using two technologies—one with diminishing returns and another with constant returns—and labor as the sole input. We show that the rate of decline in the share of agricultural employment is a sufficient statistic for the onset of economic transition from stagnation to sustained growth. Our quantitative results are consistent with the implications for the evolution of per capita income for economies in various stages of development and structural transformation.

Introduction

The world has transitioned from stagnation—roughly constant per capita income prior to the 19th century—to sustained growth in per capita income after the Industrial Revolution (see Figure 5.3 in Lucas, 2002). This phenomenon, commonly referred to as a transition from Malthus to Solow, has been the subject of several papers, including models of economic and fertility transitions (Becker, Murphy, and Tamura, 1990; Galor and Weil, 2000), a model of transition from home production to market production (Goodfriend and McDermott, 1995), a model where the transition is triggered by a threshold level of physical capital and total factor productivity (TFP) (Hansen and Prescott, 2002), and a model in which the transition results from human capital accumulation and reductions in trade costs (Tamura, 2002). In quantitative implementations of these models, the date of economic transition is typically a calibration target. The approach is to calibrate the model to deliver the onset of economic transition observed in the real gross domestic product (GDP) of developed economies that have historical data, e.g., the United Kingdom.

In this article, we show that data on recent agricultural employment is sufficient to pin down the date of economic transition. Our approach has two advantages. First, since we do not use GDP data, one can test whether the onset of transition delivered by agricultural employment matches the onset implied by GDP. Second, our approach is useful in the context of economies that do not have historical data and are usually not examined in the transition literature.