DP12822 Capital-Skill Complementarity and the Emergence of Labor Emancipation
This paper advances a novel hypothesis regarding the historical roots of labor emancipation. It
argues that the decline of coercive labor institutions in the industrial phase of development
has been an inevitable by-product of the intensification of capital-skill complementarity in
the production process. In light of the growing significance of skilled labor for fostering the
return to physical capital, elites in society were induced to relinquish their historically profitable
coercion of labor in favor of employing free skilled workers, thereby incentivizing the masses to
engage in broad-based human capital acquisition, without fear of losing their skill premium to
expropriation. In line with the proposed hypothesis, exploiting a plausibly exogenous source
of variation in proto-industrialization across regions of nineteenth-century Prussia, the initial
abundance of elite-owned physical capital that also came to be associated with skill-intensive
industrialization is shown to have contributed to the subsequent intensity of de facto serf
emancipation.
