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The Effect of Wage Payment Reform on Workers’ Labor Supply, Wages, and Welfare

Published online by Cambridge University Press:  14 December 2012

Esther Redmount ,
Arthur Snow  and
Ronald S. Warren Jr.
Esther Redmount*
Affiliation:
Associate Professor, Department of Economics and Business, Colorado College, 14 E. Cache La Poudre, Colorado Springs, CO 80903. E-mail: [email protected].
Arthur Snow*
Affiliation:
Professor, Department of Economics, Terry College of Business, Brooks Hall, University of Georgia, Athens, GA 30602. E-mail: [email protected].
Ronald S. Warren Jr.*
Affiliation:
Professor, Department of Economics, Terry College of Business, Brooks Hall, University of Georgia, Athens, GA 30602. E-mail: [email protected].
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Abstract

We examine the economic consequences of an 1886 reform in Massachusetts that mandated the weekly payment of wages. We derive conditions on key elasticities of labor supply that determine the qualitative effects of the reform on workers’ effective wages and utility. We match census and administrative data on workers in a Lowell textile mill for a period encompassing the switch from monthly to weekly payment. Empirical estimates of a labor supply equation imply that the reform increased workers’ effective wage rates and welfare. The reform also decreased the mill workers’ average wage, as predicted by the theory of compensating differentials.

Type
ARTICLES
Information
The Journal of Economic History , Volume 72 , Issue 4 , 14 December 2012 , pp. 1064 - 1087
Copyright
Copyright © The Economic History Association 2012

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