The Determinants of the Skill Premium in Late Medieval and Early Modern Europe, 1400–1800

Abstract We assemble a new dataset of demographic, geographic and institutional characteristics of twenty European cities and we investigate the skill premium, i.e. the skilled-to-unskilled wage ratio, and its long-run determinants (1400–1800). We find three main results. First, the skill premium was higher in European cities with lower market access potential. Second, demographic changes were correlated with the skill premium but their effect was null when taking into account issues of endogeneity. Finally, rural–urban interactions mattered, and the skill premium was negatively driven by the potential for productivity in the cities’ rural hinterland. Our results suggest that urban centers located in areas with more potential for growth, i.e. surrounded by rural areas with more agricultural potential or closer to interregional markets, exhibited lower disparities in labor returns, contributing to their early economic take-off.