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Title: The Emergence of a National Labor Market in US Manufacturing

Citation Type: Miscellaneous

Publication Year: 2022

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Abstract: In 1912, the last of the lower 48 states were admitted to the Union. New technology made it easier for people to move to areas previously avoided by most migrants and sustain new communities there. It also made it easier than ever to move goods across the country. However, some elements of economic integration seemed to lag behind. Scholars like Rosenbloom (2002) have long argued that regional labor markets, sufficiently separated from a national labor market, persisted through this period and even up to and through the Second World War. Studying how, why, and which labor markets remained isolated during this period helps us understand sources of push and pull forces responsible for increasing labor market integration in the United States. This paper combines newly collected data from the US Census of Manufactures for 1900, 1910, 1920, 1930, and 1940 with a new measure of labor market integration to better measure the frictions present in American regional labor markets and their implications for overall regional labor market integration. In the past, scholars like Wright (1987) and Rosenbloom (1990) have focused on using data on real wages and an appeal to a law of one price to measure labor market integration. The law of one price is an economic theory that economic historians have borrowed from trade economists and while it is possible to implement it successfully in a historical setting as in Steinwender (2018), the lack of good historical data often makes it a challenge to implement successfully. Usually a law of one price is invoked to measure the size of bilateral frictions in a market for a homogeneous good with reliable price data. One way to utilize a law of one price to measure labor market integration involves comparing real wages for the same occupation across different regions of the country. The literature has found that real wages did converge over time, but that there were persistent differences in real wages between some regions such as in Wright (1987). In particular, Mitchener & McLean (1999) find that Southern wages tended to be lower than the national average while Western wages tended to be higher. Based on these differences in real wages, the literature (Wright 1986), Rosenbloom 2002), Collins & Wannamaker 2015) have inferred the presence of significant labor market frictions and additional evidence has led to a focus on the unique facets of the Southern economy and the conclusion that the South possessed a labor market largely disconnected from the rest of the country. However, there are two reasons to believe that the strategy of inferring labor market frictions from real wages is not appropriate in this setting. The first reason is that we do not have reliable individual wage data before it was reported in the US Census starting in 1940. Even in newer publications like Salisbury (2014) and Abramitzky et al (2017), authors that want to incorporate wage data into their analysis before 1940 either have to rely on scattered data or rely on wage proxies. The second reason is that even if one can acquire enough wage data for a particular occupation or industry from a sufficiently large number of regions, the work that two individuals with the same occupation perform may be different enough to violate the law of one price assumption which requires the comparison of homogeneous labor market activity. Specifically, the concern is that even if we can control for region or industry-specific characteristics, there may be unobserved productivity differences that can bias estimation when using wages. Because of these limitations, this paper employs a regression specification from Bernard et al (2013) that relies on using a ratio of wage bills for different types of labor within an industry-region pair as the outcome variable in a law of one price regression rather than relying on incomplete wage data. However, wage bills may vary in competitive labor markets due to differences in the initial distribution of population. As in Bernard et al (2013), this paper uses a ratio of the wage bill for two types of workers: wage earners and salaried workers as the outcome variable to solve this problem. When using the ratio of two types of workers, any differences in endowed population at the region-industry level that would make a wage bill inappropriate to use for a law of one price regression are canceled. For ease of exposition, this ratio is referred to as a measure of skill premium since it measures the relative value each region-industry pair places on employing highly skilled (salaried) or low skilled (wage) labor. Because these wage bills are the product of labor demand and wages, unobserved productivity for each worker type can be controlled for. As with real wages, once the industrial composition within a state is controlled for, the law of one price argument states that any differences we observe in the average skill premium across regions are the result of labor market frictions since different types of workers would migrate to secure higher earnings in the absence of labor market frictions. In other words, once we control for the fact that Michigan had a larger share of its industrial composition in high skill premium industries like automobiles, and Wisconsin had a larger share of its industrial composition in lower skill premium industries like dairy, differences in state-level premium come from labor market frictions that prevent worker migration between skill levels, industries, and locations. The wage bill data by region and industry come from the US Census of Manufactures. While this paper is not the first to use these wage bill data, to my knowledge, this is the first paper to use data for the decadal years 1900-1940 inclusive that includes all of the recorded industrial activity instead of just focusing on the largest industries. These data were hand-recorded from scanned versions of the Census of Manufactures that are available for public access through the Census website. The data collected include all of the lower 48 states and the District of Columbia for 1900, 1910, 1920, 1930, and 1940 along with a panel of 44 cities described in the data section. These new data and the new measure used in this paper contribute directly to the literature on postbellum labor market integration in the US. However, these contributions are also relevant for the literature that has measured regional integration such as Kim (1998) that measure regional integration through non-wage channels. Other papers like Ferrie (2005) that have studied labor market integration with respect to different groups of workers, such as immigrants, can also benefit from these new data as controls to better understand push and pull forces that affect workers' decisions to relocate into different locations or occupations. With a simple OLS regression of the log of the wage bills against a full set of industry and state fixed effects, this paper finds two results about labor market integration in the United States. The first result is that labor market integration increased across the entire country between 1900 and 1940 as measured by the distribution of region fixed effects. This result is consistent with the existing narrative of labor market integration during this period. However, these increases were not smooth, and it appears that the increase in labor market integration took place between 1920 and 1930. The second result is that there is weak, if any, evidence of Southern labor markets being statistically different from any other regions. Neither the distribution, statistical significance, or magnitude of the region fixed effects support the idea that Southern labor markets included more labor market frictions than the rest of the country. The conclusions of this paper do not seek to overturn our understanding that there were differences in regional labor markets. Meaningful differences existed in 1900 and continued to exist in 1940. However, neighboring

Url: http://matthewhurteconomist.com/papers/RFPE.pdf

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Authors: Hurt, Matthew

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Data Collections: IPUMS USA - Ancestry Full Count Data

Topics: Labor Force and Occupational Structure, Migration and Immigration, Population Mobility and Spatial Demography

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