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One Market or Many? Labor Market Integration in the Late Nineteenth-Century United States
Published online by Cambridge University Press: 03 March 2009
Abstract
This article examines the geographic integration of U.S. labor markets from 1870 to 1898, using previously unexploited wage and price data for 23 occupations in 12 major cities. In contrast to the increasing nationalization found in other markets at that time, the labor market was characterized by large and persistent real wage differentials both within and between regions, leaving little doubt that late nineteenth-century labor markets remained far from completely integrated. The differentials, however, owed as much to substantial variations in labor demand growth as to the lack of labor market integration.
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References
1 For a general discussion of the formation of a national economy, see Perloff, Harvey S. et al. , Regions, Resources and Economic Growth (Lincoln, NE, 1965), pp. 191–221.Google Scholar The emergence of big business and its lasting impact on the American economy is traced in Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, MA, 1977)Google Scholar; see also Duboff, Richard B., “The Telegraph and the Structure of Markets in the United States, 1845–1890,” Research in Economic History, vol. 8 (Greenwich, CT, 1983), pp. 253–77.Google Scholar On the emergence of a national capital market, see, for example, James, John A., Money and Capital Markets in Posibellum America (Princeton, 1978).Google Scholar
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6 The preceding discussion assumes that the location of “employers”—or more properly the other factors of production—are fixed. If the relocation of these other factors of production is taken into account, then the effect on wages of any site-specific amenities will eventually be eliminated since, unlike owners of labor services, the owners of these other factors of production do not have to move with these factors, and their location decisions will not be affected by the presence of amenities. Complete spatial equilibrium will be achieved only when all factor prices and utility levels are equalized. In the case where there are site-specific amenities this can occur either through the concentration of all workers and “employers” in one place (the site with the most favorable amenities) or through the dissipation of these amenities as the result of increased congestion at physically constrained locations.Google Scholar
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8 The data come from U.S. Department of Labor, “Wages in the United States and Europe, 1870–1898,” Bulletin of the Department of Labor, no. 18 (09. 1898), pp. 665–93.Google Scholar
9 The principal sources of wage data in the late nineteenth century are discussed in Long, Wages and Earnings, pp. 13–17.Google Scholar
10 U.S. Dept. of Labor, “Wages in the United States and Europe,” pp. 665–66. Correspondence with the historian of the department and with the staff of the National Archives uncovered no other records relating to this study and no trace of the more than 400 pages of underlying individual wage quotations to which the study refers.Google Scholar
11 The occupations covered by the data are blacksmiths, boilermakers, iron molders, machinists, pattern makers, blacksmiths' helpers, boilermakers' helpers, iron molders' helpers, machinists' helpers, bricklayers, carpenters, stone masons, house painters, plumbers, hod carriers, common laborers, street laborers, teamsters, cabinet makers, compositors, railroad firemen, joiners, and stone cutters. While the coverage of the data is tilted toward craft workers and away from industrial employees, the occupations included nonetheless represent a considerable fraction of the urban manufacturing labor force.Google Scholar
12 The northeastern cities are Boston, New York, Philadelphia, Baltimore, and Pittsburgh. The midwestern cities are Cincinnati, Chicago, St. Louis, and St. Paul.Google Scholar
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14 Even so, for the beginning of the period it is necessary to settle for data at the state level. The data for 1869 are reported in U.S. Treasury Department, Bureau of Statistics, The Cost of Labor and Subsistence in the United States in the Year 1869, by Young, Edward (Washington, DC, 1870). Prices were collected in the “towns” in each state.Google Scholar Although there is some basis for concern about how accurately prices in these towns will reflect prices in the large cities being examined here, Coelho and Shepherd, “The Impact of Regional Differences,” pp. 80–81, find that in 1890 there was no correlation between city size and the level of urban prices. Their price index does not include housing costs, but neither does the price index employed in this article. Prices for every year between 1890 and 1898 are reported inGoogle ScholarU.S. Department of Commerce and Labor, Eighteenth Annual Report of the Commissioner of Labor, 1903: Cost of Living and Retail Prices of Food (Washington, DC, 1904).Google Scholar
15 The results of late nineteenth-century expenditure surveys are summarized in Coelho and Shepherd, “Differences in Regional Prices,” pp. 563–64. Their work also provides some indication of how accurately variations in retail food prices are likely to reflect variations in the prices of other components of expenditures. They calculated both an overall price index for each region and subindices for food, rent, clothing, and fuel and light. Some differences are apparent in the behavior of the subindices, but retail food prices do a fairly good job of measuring the overall level of retail prices.Google Scholar
16 The role of retail margins seems particularly important in accounting for the fact that retail prices varied considerably more between cities than did wholesale prices. Data collected by the Department of Agriculture indicate that wholesale prices of pork and wheat varied by only 2 or 3 percentage points between Chicago, St. Louis, and Cincinnati, while wholesale prices in these cities generally remained within 5 to 10 percentage points of those in New York, a much smaller variation than is revealed by the retail price data discussed later. U.S. Department of Agriculture, Report of the Commissioner of Agriculture, 1881 and 1882 (Washington, DC, 1882), pp. 654–61Google Scholar; and U.S. Department of Agriculture, Report of the Secretary of Agriculture, 1890 (Washington, DC, 1890), pp. 322–323.Google Scholar
17 The choice of a linear in logarithms decomposition is suggested by the a priori expectation that the costs of movement which the city effect is intended to measure are likely to be proportional to wages. Such a specification may be rationalized under the assumption that the primary costs of movement involve the expense of information gathering and hence will reflect the opportunity cost of time spent in other employment. If the true relationship takes some other form, then this specification may be regarded as a first order approximation to the true relationship. One alternative is the assumption that migrants in all occupations face an identical fixed cost of movement—such as would be the case if transportation costs were the major barriers to labor market integration. In this case an additive specification would make more sense. In practice the results reported below are insensitive to the choice between these two specifications.Google Scholar
18 Alternatively, intercity wage differentials could be computed using the average wage in each city. However, because the occupational coverage of the data varies from city to city, average wages will confound the effects of these occupational differences with the spatial variations which we seek to measure. In contrast, the regression approach employed here corrects for these occupational differences.
19 If εijis assumed to be distributed normally, it is possible to test hypotheses about the statistical significance of differences in the magnitude of the coefficients estimated by the regression. It may be, however, that disturbances are correlated across closely related occupations with a particular city. If so, then we would expect to find that the estimated city effects varied systematically between occupation groups. This possibility will be taken up later.
20 Defining the dummy variable σks, (k = i, j) such that σks = 1 if k = s, and σks = 0 otherwise, the regression equation can be written as
![](https://static.cambridge.org/binary/version/id/urn:cambridge.org:id:binary:20151017020859213-0908:S0022050700035737_eqnU1.gif?pub-status=live)
where i represents occupations, j represents cities, and t represents time periods. Parameter estimates can be obtained for each year separately, or data from a period of several years can be used to obtain long-run estimates of the parameters. The choice of a base city and occupation is arbitrary and will not affect the estimates of relative wage levels. The pattern of variation of the city effect over time for any one city will, however, depend on which city is chosen as the base.
21 Real wages are computed by deflating nominal wages by a linear interpolation of the relative retail price indices from Table I. In the cities where no trend was apparent between 1869 and 1890–1898 (Pittsburgh, Chicago, Richmond, St. Louis, and San Francisco), I used the average of all three price level estimates. Where there was an apparent trend between 1869 and 1890–1898 (the other seven cities), I used the average of the estimates for 1890 and 1898 for these nine years and used a simple linear interpolation between this level and that for 1869 to compute the level in each of the intervening years. Initial estimates of intercity and interregional differentials indicated that coefficients varied only slightly from year to year and that comparisons could be simplified by estimating city and regional effects on data from five-year intervals. The use of a longer time period has the added advantage of smoothing out any short-run shocks to wages which might distort intercity omparisons in a single year.Google Scholar
22 There is some evidence discussed below to suggest that housing costs in New York were disproportionately large and that some of the variation in eastern wage levels may be attributable to the fact that this expense is not fully represented in the price index used in this section.Google Scholar
23 An alternative comparison is provided by contemporaneous variations in the prices for other commodities. For example, wholesale prices for agricultural commodities, such as pork and wheat, reveal interregional differentials that were typically less than 10 percent. U.S.Dept. of Agriculture, Report of the Commissioner, pp. 654–61; and U.S. Dept. of Agriculture, Report of the Secretary, pp. 322–33.Google Scholar
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28 Although the differentiation of northern and southern labor markets has long been a theme in U.S. economic history, the distinction between antebellum midwestern and northeastern labor markets has only recently been noted. See Field, Alexander James, “Sectoral Shift in Antebellum Massachusetts: A Reconsideration,” Explorations in Economic History, 15 (04 1978), pp. 146–71CrossRefGoogle Scholar; and David, Paul A., “Industrial Labor Market Adjustment in a Reigion of Recent Settlement: Chicago, 1848–1868,” in Kilby, Peter, ed., Quantily and Quiddity: Essays in U.S. Economic History (Middletown, CT, 1987).Google Scholar
29 Although this service was neither as comfortable nor as fast as first-class passenger service, fares were two-thirds the regular rate, and travel times to the major cities of the interior were only two or three days.Google Scholar
30 Fares to St. Louis, $16.10, and St. Paul, $33.00, were somewhat higher than those to Chicago, but they fell more quickly in the succeeding years. Goddard, Frank B., Where to Emigrate and Why (Philadelphia, 1869), pp. 583–84Google Scholar; and Hoff, W. and Schwabach, F., North American Railroads: Their Administration and Economic Policy (New York, 1906), p. 244.Google Scholar
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33 This calculation assumes that the prices of other commodities varied with a weighted average of food and housing costs and assigns weights of 0.7 and 0.3 to food and housing, respectively. The differential in housing costs implied for St. Louis (8 percent) and St. Paul (23 percent) are smaller but appear unlikely in light of the limited evidence on spatial variations in housing costs that is reviewed below.Google Scholar
34 The precise magnitude of the interregional differentials fluctuated considerably over the course of the decade. While the differential between New England and the East North Central region remained fairly steady during these years, the rents in the Middle Atlantic region converged somewhat toward those in the East North Central region. Coelho and Shepherd, “Differences in Regional Prices,” p. 591.Google Scholar
35 If employers in various cities were in fact engaged in production requiring employees with different qualifications, then there would be in effect no basis for labor market arbitrage between different cities, and the question of labor market integration would be moot.Google Scholar
36 For the summer months the greatest difference was about 6.5 percent between Chicago (9.94 hours) and Baltimore (9.33 hours). In the winter months hours in a number of the eastern cities actually exceeded those in midwestern cities. U.S. Department of the Interior, “Manufactures: Statistics of Cities,” Eleventh Census of the United States (1890), vol. 12 (Washington, DC. 1895), pp. 724–33.Google Scholar The impression that the length of the work day did not vary systematically across locations is confirmed by data presented in U.S. Department of Interior, “Report on the Statistics of Wages in Manufacturing Industries with Supplementary Reports,” Tenth Census of the United States (1880), vol. 20 (Washington, DC, 1886), pp. xxviii–xxxiii.Google Scholar
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41 Although the rate of net immigration into individual cities cannot be measured directly, variations in rates of population growth are likely to be a good proxy for this variable. According to estimates by David, Paul A., “Industrialization and the Changing Labor Supply in a Region of Recent Settlement,” Memorandum 25–26, Research Center in Economic Growth (Stanford, 1963), migration accounted for between three-fourths and four-fifths of the growth in Chicago's population in the decades between 1870 and 1900.Google Scholar
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