The Extent of the Labor Market in the Postbellum United States

Joshua L. Rosenbloom

University of Kansas

This summary is a preliminary and incomplete description of work

in progress. Please do not cite or quote from this summary.

Between 1870 and 1915 more than 25 million immigrants entered the United States. At the same time millions of Americans were on the move from east to west, and from rural to urban places. Although the massive redistribution of labor accomplished by late 19th and early 20th century labor markets has long been of interest to economists and historians, until recently there have been few efforts to delineate the geographic scope of labor markets at this time. Not only is the history of labor market integration important in its own right, but establishing the relative weight of local, regional, and international conditions in determining market conditions is essential for understanding such issues as the rate of growth of wages, the evolution of the wage structure, the shorter hours movements, and the spread of organized labor. The key issue here is the relative weight of local vs. global conditions in explaining these and other phenomena.

Recently collected data on wages and earnings now make it possible to establish with some precision the history of U.S. labor market integration in the late 19th and early 20th centuries. These data reveal an impressive but uneven pattern of integration. By the end of the 19th century labor markets in the northern U.S. were part of a tightly integrated regional market and closely linked with labor markets in northern Europe. Yet this regional and international integration coincided with the persistent failure of integration to link northern and southern labor markets within the U.S.

The essence of what markets do is process information, and bring transactors together so that they can complete exchanges. In the absence of the Walrasian auctioneer, they must do this through humanly created institutions. As is true today, the institutional framework of the labor market is the product of the decentralized and largely uncoordinated actions of millions of individuals. Explaining the uneven pattern of labor market integration during the late 19th century requires an examination of the historical forces that shaped labor market institutions in this period.

In the next two sections I establish the dimensions of American labor markets during the late 19th and early 20th centuries, considering first the evidence on international integration, and then turning to the integration of markets within the U.S. The third section of the paper traces the institutional developments through which labor market integration occurred and offers an explanation for the uneven pattern of integration in this period. The fourth section considers the implications of these findings.

I. International Labor Market Integration

Between 1860 and 1914 about 52 million Europeans emigrated to labor scarce areas in the Americas, and Australasia. Of these immigrants roughly two thirds were bound for the United States. Undoubtedly there were many factors that influenced individual decisions about whether to migrate, and if so where. But it is also apparent that economic forces were a central factor in directing these unprecedented population movements.

Although the magnitude of the population redistribution accomplished by late 19th and early 20th century labor markets is impressive, it reveals little about the extent of international integration. For this purpose we need to look at the behavior of wage differentials between the U.S. and Europe. The more closely integrated labor markets in different countries were, the smaller these gaps will be, and the more rapidly they will converge in the wake of any localized shocks to supply or demand.

Several studies have attempted to make such comparisons for the late 19th and early 20th centuries. The most extensive comparison is offered by Jeffrey Williamson (1995), who has constructed a data set of internationally comparable real wages from 1830 to the present for 11 European and four New World countries. Wage rates in each country refer to unskilled labor. They are deflated by national cost of living series and then converted to internationally comparable levels using purchasing- power-parity price indices. As Williamson (1995) demonstrates, the period from 1870 to 1913 was one of pronounced international wage rate convergence, explained in large part by reductions in the wage gap between the New World and the Old.

To understand what this convergence meant for American labor markets it is useful, however, to look more closely at the gap between wages in the U.S. and each of the European countries in Williamson's data. Two patterns are apparent. In the first group of countries (Great Britain, Germany, France, Belgium, and the Netherlands), despite substantial short run fluctuations, the wage gap with the U.S. remained relatively stable. Among these countries, the wage gap was smallest for Great Britain (roughly 30-40%) and largest for France (50-60%). The persistence of these gaps suggests that they reflect a relatively stable equilibrium situation. Indeed emigration rates from most of the countries shown in the first group were quite low after 1870, implying that the remaining wage gaps created little incentive to trans-Atlantic immigration. Only British emigration rates remained relatively high, suggesting that the wage gap may overstate the transactions costs in this case.

In the second group of countries (Ireland, Denmark, Norway, Sweden, and Italy) wage levels were converging toward those in the U.S. In three of these countries - Ireland, Sweden, and Denmark - wage ratios reached levels only slightly below Great Britain by the early 1890s, and then leveled off. Convergence in Norway and Italy was slower and less complete. The emigration rates from these countries were higher than for the countries with stable wage gaps, consistent with the view that these countries were undergoing a process of adjustment toward equilibrium, as they became integrated into a broader Atlantic labor market.

In another recent study of international labor market integration Robert Allen (1994) compares real wage levels in the English speaking world from 1880 to 1913. Allen has compiled real wage rates for unskilled laborers and skilled bricklayers, as well as average factory earnings in six cities in England, Canada, the U.S., and Australia. Comparing of U.S. and British cities, he concludes that for unskilled labor real wages were essentially equalized across the two countries, but that the wages of bricklayers and the earnings of factory workers in the U.S. were roughly twice the level of comparable workers in Britain. Shergold's (1983) comparison of real wages in Pittsburgh and Birmingham in the early 1900s similarly found that wage gaps increased with skill level, rising from near equality among unskilled workers to a range of 50 to 100% for the most skilled workers.

Together wage and migration data point to the emergence and extension of a well integrated trans-Atlantic labor market in the decades after the U.S. Civil War. True, transactions costs in international labor markets were large enough to prevent the equalization of American and European wage levels. But wage gaps stabilized at levels such that the movement of labor from labor- abundant Europe to labor-scarce America equalized the long-run growth rates of wages on both sides of the Atlantic. At the same time, the scope of the international labor market was expanding, to include Ireland, Scandinavia, and Italy.

The US-British wage gap, of about 30%, provides a rough measure of the minimum costs of trans-Atlantic transactions. Given the long history of contact between these countries and a common language it is hardly surprising that the U.S.-British wage gap was the smallest in Williamson's data. More striking is the fact that wage gaps were not much larger for many of the other countries. Whether one sees the absolute magnitude of these wage differentials as "large" or "small" is a matter of judgement. In comparison to wage gaps within the U.S. in the late 19th and early 20th centuries they do not appear so large.

II. Was There a National Labor Market in the U.S.?

The massive international migrations of the late 19th and early 20th century coincided with high rates of internal population redistribution within the United States. In general population tended to move from East to West, and from rural to urban areas. But these broad trends masked substantial local variation in growth experience. In these years the dispersion of urban growth rates was greater than in any other subsequent period (Madden 1956).

Data on regional wage behavior within the U.S. is fragmentary, but a number of studies have explored the available sources. Putting them together it is possible to assemble a reasonably complete picture of labor market integration. Wages in the North and South Central regions remained higher than in the East throughout the pre-World War I era reflecting the more rapid pace of economic growth of the interior sections of the country. Although the East-West differential was relative large as late as 1870, within the northern part of the country there was a very rapid convergence after this date, suggesting the existence of a substantially unified labor market across the Northeast and North Central regions before the end of the century. A similar East-West convergence is also apparent within the South, though it was more gradual. While these two regionally integrated markets were emerging, however, large wage gaps persisted between them, suggesting that northern and southern labor markets remained largely distinct in this period.

Coelho and Shepherd (1976) used wage and price data from the Weeks report to examine regional differences in real wages from 1851 to 1880. Because of uneven geographic coverater in their source, the best evidence relates to New England, the Mid Atlantic, East North Central, West North Central, and East South Central regions, while wage trends in the South Atlantic and other regions are hard to trace. A clear tendency toward convergence is apparent: in the 1850s wages in the other regions were from 10 to 40% above the Mid Atlantic, but by the 1870s these differentials had fallen to less than 10 except in the East North Central, where wages remained 10 to 20% above the Mid Atlantic.

Data in the Aldrich and 19th Annual Reports, analyzed by Coelho and Shepherd (1979), and Sundstrom and Rosenbloom (1993), respectively, can be used to extend regional real wage comparisons to 1890, though changes in geographic and occupational coverage mean that differentials calculated with these data cannot be directly compared to those based on the Weeks Report. Nonetheless, both sources suggest that within the North convergence continued over the next decade. Although relative wages varied across occupations, wages in New England, and the East and West North Central regions were generally within 5 to 10% of the Mid Atlantic by 1890. In contrast wages further west - in the Mountain and Pacific regions - remained 15 to 25% above eastern levels. The data for the South are somewhat more complex. Wages for unskilled labor across much of the South were diverging from northern levels, while differentials for skilled workers were smaller or non-existent. The South Atlantic was clearly a low wage region for all types of labor.

Occupational wage data in Bulletin 18 provide a consistent sample of locations and occupations from 1870 to 1898, thus spanning the gap in coverage between the Weeks report data which end in 1880 and the Aldrich and 19th annual reports which cover 1890. Contrary to these other sources, however, Rosenbloom (1990) concluded that Bulletin 18 data do not imply any tendency toward equalization within the North. Rather midwestern earnings remained 20 to 25% above eastern levels from 1870 to 1898. It seems likely, however, that the discrepancy between Bulletin 18 and the other data sources is due to the peculiar sampling procedure used to obtain the Bulletin 18 data. Certainly both the Aldrich and 19th Annual Reports which are based on larger and more representative samples show that wages in the Northeast and North Central regions were approximately equalized by 1890. What is at issue then, is simply when convergence occurred.

Census earnings data examined in Rosenbloom (1994) both reinforce conclusions based on occupational wage data, and extend them. As early as 1879 real average earnings were nearly equalized across New England, the Mid Atlantic and East North Central regions. Although earnings in the West North Central were substantially higher than in the east in 1879 they converged rapidly (though not completely) toward equality. In the South Atlantic earnings which began 16% below the Mid Atlantic diverged steadily, so that by 1914 the gap had risen to 26%. In the South Central region, earnings began higher than in the Mid Atlantic, but had fallen slightly behind by 1889. The gap continued to widen, reaching 14% by 1914, and 20% by 1919, bringing them into equality with earnings in the South Atlantic.

The census earnings data also shed light on the extent of wage equalization within regions, something that previous studies have not explicitly considered. In 1879 the greatest dispersion of earnings occurred within the two southern regions, where the coefficient of variation was greater than 0.3, roughly two to three times as large as for any of the northern regions. In both the South Atlantic and South Central, however, dispersion fell sharply indicating that inter-regional earnings convergence within the South was accompanied by substantial equalization of earnings within regions.

Both wage and earnings data suggest that a substantially integrated northern labor market emerged in the decades immediately following the Civil War. This market did not, however, extend to the southern states. Indeed the North-South wage differentials implied by wage data for unskilled laborers are as large or larger than were trans-Atlantic differentials.

III. Labor Market Institutions and Labor Market Integration

Clearly labor market integration over long distances was possible by the late 19th century. Within the northeastern and midwestern U.S. substantial population redistributions were accomplished with only relatively small wage differentials. Although international wage differentials were larger - reflecting the larger costs of movement - integration was sufficient to equalize the long-run trend in wage growth in the U.S. and the countries of northwest Europe. Moreover, the rising tide of emigration from Ireland, Scandinavia, and later Italy and the corresponding increase in relative wages in these countries suggests that the boundaries of international labor markets were expanding in the late 19th and early 20th centuries.

But the pattern of integration was uneven. At the same time that labor markets across the Northeast and North Central U.S. were becoming part of a unified regional and international market, they remained largely isolated from Southern labor markets. Explaining the selective pattern of labor market integration requires a consideration of the institutional structures that facilitated the flow of information between employers and workers, and provide them with the resources they needed to complete transactions. Because these institutions were the product of the decentralized and uncoordinated action of millions of individuals, their evolution tended to follow a path-dependent process in which historical accidents exerted a lasting influence.

Prior to the Civil War, the dominant pattern of internal migration was from East to West. Initially, manufacturers in the Northeast recruited labor for their factories from among the stranded agricultural population created by competition from western farms. But by the 1840s, this source of labor was declining, while European immigration was increasing. North- South separation and northern reliance on immigrant labor was reinforced by the Civil War, and it was in these circumstances that late 19th century patterns of labor market integration emerged. They persisted because southern job-seekers, especially in less-skilled jobs were unlikely to have personal contacts in the North who could provide them with information or assistance, and because northern employers who might have wished to tap lower-wage southern labor sources lacked any well developed mechanism to do so. There were few established employment agencies in the South, or places to which agents could be dispatched with the expectation of being able to recruit a large number of workers. Consequently outmigration from the South remained relatively slow, until the end of large scale European immigration caused by World War I, forced northern employers to undertake the concerted efforts necessary to develop mechanisms to recruit labor in the South. In the wake of these efforts, outmigration rates from the South rose sharply after 1910.

IV. Conclusion

Late 19th and early 20th century labor markets were extensive, but integration was uneven and selective. While this conclusion illustrates the importance of historical forces in shaping labor market development, it also implies that late 19th century labor history cannot be fully understood at the level of the community or the nation. Labor market integration was not perfect of course, and in the short run local conditions probably did matter, but in the longer run, communities were integrated into much broader markets, and this connection profoundly influenced wage determination. Thus, the relatively slow growth of real wages in the U.S. as compared to labor productivity in this period appears to be explained by the depressing effects of immigration on domestic wage levels. There is some evidence that the effects of this competition were greatest among unskilled workers, and the relative protection afforded skilled workers may thus help to explain the apparent widening of skill differentials at this time. The competitive pressures created by the extension of labor markets also help to rationalize much of the rise in labor conflict in this period, as workers sought to preserve or enhance barriers to competition which would protect them from this competition.

References

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Coelho, Philip R. P. and James F. Shepherd (1979). "The Impact of Regional Differences in Prices and Wages on Economic Growth: The United States in 1890." Journal of Economic History 39 (March), 69-85.

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Rosenbloom, Joshua L. (1990). "One Market or Many? Labor Market Integration in the Late 19th-Century United States." Journal of Economic History 50 (March), 85-107.

Rosenbloom, Joshua L. (1994). "Was there a National Labor Market at the End of the 19th Century? Intercity and Interregional Variation in Male Earnings in Manufacturing." NBER Historical Working Paper, no. 61.

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Sundstrom, William A. and Joshua L. Rosenbloom (1993). "Occupational Differences in the Dispersion of Wages and Working Hours: Labor Market Integration in the United States, 1890-1903." Explorations in Economic History 30 (October), 279-408.

Williamson, Jeffrey G. (1995). "The Evolution of Global Labor Markets since 1830: Background Evidence and Hypotheses." Explorations in Economic History 32 (April), 141-96.