Lessons from the Age of Steam still relevant for the digital future

Lessons from the Age of Steam still relevant for the digital future

The United Kingdom has some of the highest levels of inequality between regions in the industrialised world. Inequalities in pay, productivity, skills and health outcomes have endured for decades despite governments of both left and right committing to “levelling up” or promising to “kickstart economic growth.”

What are the roots of such strong regional differences and can they be reduced or removed?

A new analysis by Professor Sascha Becker, Professor Christian Dustmann and Dr Hyejin Ku, published this month by the Rockwool Foundation, offers insights from Germany.

Using digitized historic data, contemporary labour market statistics, firm productivity measures, and historical as well as modern patent data, Professor Becker and his co-authors explore regional inequality in Germany and trace the influence of one of the most transformative technologies of the Industrial Revolution – the introduction of the steam engine.

Professor Becker explains: “German regions that had more steam engines per worker in 1875 have higher wages, a more skilled labor force, and greater firm productivity today. They also show greater occupational diversity and sustained innovation over time.”

The researchers found:-

• Wages and productivity: Regions that were in the top 10% of steam engine intensity (13.13 steam engines per 1,000 workers) have 4.59% higher average wages in modern day Germany (1975-2019). The study finds that nearly 50% of the steam engine-related wage premium is explained by having more productive firms in these regions.
• Education: These regions have also a larger share of tertiary-educated and technically skilled workers 150 years later.
• Innovation and technological diversity: Regions with more steam engines per worker in 1875 registered significantly more patents, historically (1877-1918) and in recent decades (1980–2014), and show greater technological diversity in their innovations.
• Occupational diversity: Regions with more steam engines per worker in 1875 exhibit greater occupational diversity today, both within the overall economy and within the manufacturing sector.

Professor Becker comments: “Our research finds a ‘virtuous cycle’ whereby the introduction of new technology – in this case, the steam engine - into a local economy creates demand for skilled workers with specialist knowledge of engineering and maintenance. This encourages investment in education and innovation and kickstarts a self-reinforcing growth cycle which lasts for generations.

“AI, automation and other digital technologies have the potential to be similar disruptors in today’s regional economies. Our research suggests that regions where early adopters of these new ways of working become established could enjoy very long-term benefits.”

• The Virtuous Cycle Between Skills and Technology Sascha O. Becker, Christian Dustmann, Hyejin Ku 2026 ROCKWOOL Foundation Berlin Discussion Paper Series 013/26 https://www.rfberlin.com/wp-content/uploads/2026/01/26013.pdf