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Was There a Golden Age of Flexible Wages? Evidence from Ohio Manufacturing, 1892–1910

Published online by Cambridge University Press:  03 March 2009

William A. Sundstrom
William A. Sundstrom
Affiliation:
The author is Assistant Professor of Economics, Santa Clara University, Santa Clara, CA 95053.
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Abstract

Several macroeconomic studies have found evidence of diminishing cyclical wage flexibility in the United States since the turn of the century. But the importance of wage reductions during downturns must be questioned even for the era of allegedly flexible wages. This article shows that during the severe contractions of 1893 and 1908 only a small minority of Ohio manufacturing workers experienced cuts in their wage rates.The apparent downward flexibility of average earnings in these data was largely the consequence of changes in the occupational composition of the employed work force rather than pay cuts for individual workers.

Type
Papers Presented at the Forty-Ninth Annual Meeting of the Economic History Association
Information
The Journal of Economic History , Volume 50 , Issue 2 , June 1990 , pp. 309 - 320
Copyright
Copyright © The Economic History Association 1990

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References

Helpful comments by Tony O'Brien and other participants in the session on “Wages, Output, and Macroeconomic Instability” at the 1989 Economic History Association Meetings are gratefully acknowledged.Google Scholar

1 Gordon, Robert J., “Why U.S. Wage and Employment Behaviour Differs from That in Britain and Japan,” Economic Journal, 92 (03. 1982), pp. 13–44CrossRefGoogle Scholar; and Sachs, Jeffrey, “The Changing Cyclical Behavior of Wages and Prices: 1890–1976,” American Economic Review, 70 (03. 1980), pp. 78–90.Google Scholar

2 In this spirit, a number of studies have pointed to the perverse effects of New Deal legislation in maintaining above-trend real wages and ignoring the root causes of high unemployment; see especially Weinstein, Michael M., “Some Macroeconomic Impacts of the National Industrial Recovery Act, 1933–1935,” in Brunner, Karl, ed., The Great Depression Revisited (Boston, 1981), pp. 262–81CrossRefGoogle Scholar; and Jensen, Richard J., “The Causes of Unemployment in the Great Depression,” Journal of Interdisciplinary History, 19 (Spring 1989), pp. 553–83.CrossRefGoogle ScholarSuch views have been challenged by other researchers; see Baily, Martin Neil, “The Labor Market in the 1930s,” in Tobin, James, ed., Macroeconomics, Prices, and Quantities: Essays in Memory of Arthur M. Okun (Washington, DC, 1983), pp. 21–61Google Scholar; and Lebergott, Stanley, “Wage Rigidity: Concept or Phrase?” (unpublished manuscript, Wesleyan University, 03. 1989).Google Scholar

3 Carter, Susan B. and Sutch, Richard, “The Labor Market in the 1890s: Evidence from Connecticut Manufacturing” (draft of paper prepared for presentation at the International Economic History Association meetings, Leuven, Belgium, 1990)Google Scholar; and Shergold, Peter R., “Wage Rates in Pittsburgh during the Depression of 1908,” Journal of American Studies, 9 (08. 1975), pp. 163–88.CrossRefGoogle Scholar

4 More complete discussions of these sources are available from the author.Google Scholar

5 In examining evidence of a similar type Mitchell expressed strong concern about underreporting: see Mitchell, Daniel J. B., “Wage Flexibility: Then and Now,” Industrial Relations, 24 (Spring 1985), pp. 266–79.Google Scholar

6 These figures are derived from data published in Ohio State Bureau of Labor Statistics, Eighteenth Annual Report (Columbus, 1895).Google Scholar

7 During the calendar year of 1931, when the United States experienced large employment losses, only 22.8 percent of workers experienced wage changes, a figure not drastically different from that reported in Table 1. See Mitchell, “Wage Flexibility.”

8 The probit results are presented in Sundstrom, William A., “Wage Flexibility and Labor Market Adjustments in the Contraction of 1893: The Case of Cincinnati” (unpublished manuscript, Santa Clara University, 04 1989).Google Scholar

9 Nominal interest rates soared during early 1893, suggesting inflationary expectations. I am grateful to Charles Calomiris for calling this to my attention.Google Scholar

10 In 1906 Cincinnati and Cleveland together employed about 35 percent of the total workers reported for the state.Google Scholar

11 See Shergold, “Wage Rates in Pittsburgh”Google Scholar; and Hanes, Christopher, “The Cyclical Movement of American Manufacturing Wages in the Gilded Age, 1870–1912” (unpublished manuscript, Harvard University, 03. 1989).Google Scholar

12 Reder, M. W., “The Theory of Occupational Wage Differentials,” American Economic Review, 45 (12 1955), pp. 833–52.Google Scholar

13 See Keane, Michael, Moffitt, Robert, and Runkle, David, “Real Wages over the Business Cycle: Estimating the Impact of Heterogeneity with Micro Data,” Journal of Political Economy, 96 (12. 1988), pp. 1232–66.CrossRefGoogle Scholar

14 Further details on these calculations are available from the author.Google Scholar

15 The top 10 employing industries in Cincinnati in 1906, according to the Ohio Bureau of Labor Statistics, were boots and shoes; clothing; printing and binding; machinery; furniture; cigars; carriages and wagons; tools; soaps, candles, and tallow; and foundry and machine shop products. These industries employed just over half the manufacturing workers in Cincinnati in 1906.Google Scholar

16 Reported employment in these industries fell by about one percent between 1906 and 1907, reflecting the onset of the contraction by late 1907.Google Scholar