Abstract

European countries paved the way for modern economic growth during the nineteenth century with large-scale reforms facilitating human capital accumulation. The literature has investigated the drivers of this process by looking at the role of elites in broad education investments. However, less attention has been devoted to understanding the provision of infrastructures promoting workers’ health, a key component of human capital at the time. This paper tests the hypothesis whether capital-labour production complementarities in the production process compelled economic and political elites to invest in public health goods. We relate the extraordinary and sudden decline in working-age population caused by the 1866 cholera epidemic in Germany to subsequent construction of piped water supplies. Our results show that cities affected by the epidemic were approximately 6 percentage points more likely to build waterworks compared to cities without the epidemic. An instrumental variable approach supports the causal interpretation of our results. In addition, we find that capital-skill complementarities were an important driver of investment in health infrastructures. We show that commercial cities, employing more valuable workers, exposed to cholera were more likely to build waterworks. Also, shocked places with a greater share of literate workers invested in these systems earlier than their counterparts with lower levels of human capital, particularly in the first two decades after the epidemic.