Unequal Returns: Industrialization and the Concentration of Wealth

Thilo Nils Hendrik Albers, Felix Kersting and Timo Stieglitz

No 22003, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study how changes in the distribution of capital returns in the wake of the Industrial Revolution shaped wealth in a model of dynastic wealth accumulation with heterogeneous returns and a two-sector structure. Three mechanisms drive wealth concentration: industrial returns are higher and more dispersed, frictions make movement into industry gradual and one-directional (dynastic type dependence), and returns rise with wealth within industry but not in agriculture (scale dependence). Calibrated to pre-industrial Germany and individual-level return data, the model explains the rise in the top-1% share from below 20% in 1800 to 45% in 1914. Higher and more dispersed returns account for half of it, the two sector-specific channels account for the other half. Absent the World Wars and institutional change, wealth inequality would have stayed permanently high as unequal capital accumulation dominates Kuznetsian forces.

Keywords: Simulation (search for similar items in EconPapers)
JEL-codes: N33 (search for similar items in EconPapers)
Date: 2026-09
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