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

² Lebergott, Stanley, Manpower in Economic Growth: The American Record Since 1800 (New York, 1964), pp. 239–40Google Scholar; Easterlin, Richard A., “Interregional Differences in Per Capita Income, Population, and Total Income, 1840–1950,” in Trends in the American Economy in the Nineteenth Century, National Bureau of Economic Research, Studies in Income and Wealth, vol. 24 (Princeton, 1960), pp. 91–92.Google Scholar The antebellum labor market is discussed in Margo, Robert A. and Villaflor, Georgia C., “The Gorwth of Wages in Antebellum America: New Evidence,” this Journal, 47 (12 1987), pp. 873–95Google Scholar; and Rothenberg, Winifred B., “The Emergence of Farm Labor Markets and the Transformation of the Rural Economy: Massachusetts, 1750–1855,” this JOURNAL, 48 (09 1988), pp. 537–66.Google Scholar

³ Wright, Gavin, “The Economic Revolution in the American South,” Journal of Economic Perspectives, 1 (Summer 1987), pp. 161–78.Google Scholar

⁴ Long, Clarence D., Wages and Earnings in the United States, 1860–1890, National Bureau of Economic Research, General Series, no. 67 (Princeton, 1960), finds large interregional differentials in nominal wages from 1860 to 1890 with wages highest in the Midwest, lowest in the South, and intermediate in the East.Google ScholarCoelho, Philip R. P. and Shepherd, James F., “Regional Differences in Real Wages: The United States, 1851–1880,” Explorations in Economic History, 13 (04 1976), pp. 203–30CrossRefGoogle Scholar; and Coelho, Philip R. P. and Shepherd, James F., “The Impact of Regional Differences in Prices and Wages on Economic Growth: The United States in 1890,” this JOURNAL, 39 (03 1979), pp. 69–85, report that adjusting nominal wages for differences in the cost of living across regions increases, rather than decreases, these wage differentials.Google Scholar

⁵ This is the criterion that has been used most often in historical studies of capital market integration. See, for example, Davis, Lance E., “The Investment Market, 1870–1914: The Evolution of a National Market,” this JOURNAL, 25 (09 1965), pp. 355–99Google Scholar; Smiley, Gene, “Interest Rate Movements in the United States, 1888–1913,” this JOURNAL, 35 (09 1975), pp. 590–620Google Scholar; and James, John A., “The Development of a National Money Market,” this JOURNAL, 36 (12 1976), pp. 878–97. Recently, several articles in the antitrust literature have proposed that the extent of the market be measured by the similarity of price movements.Google ScholarStigler, George J. and Sherwin, Robert A., “The Extent of the Market,” Journal of Law and Economics, 28 (10 1985), pp. 555–85CrossRefGoogle Scholar; and Spiller, Pablo T. and Huang, Cliff J., “On the Extent of the Market: Wholesale Gasoline in the Northeastern United States,” Journal of Industrial Economics, 35 (12 1986), pp. 131–45.CrossRefGoogle ScholarOdell, Kerry A., “The Integration of Regional and Interregional Capital Markets: Evidence from the Pacific Coast, 1883–1913,” this JOURNAL, 49 (06 1989), pp. 297–310, suggests a method for combining these two criteria. While it is not practical to extend Odell's method to an examination of 12 distinct locations, the correlation of wage movements across cities largely confirms conclusions drawn on the basis of the pattern of intercity variation in wage levels.Google ScholarRosenbloom, Joshua L., “Labor Market Institutions and the Geographic Integration of Labor Markets in the Late Nineteenth Century United States” (Ph.D. diss., Stanford University, 1988).Google Scholar

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

⁷ Two problems make it difficult to infer the extent of labor market integration from the behavior of wages. First, measurement problems make it difficult to detect integration where it does exist. Heterogeneity in the workers' ability, the kind of work they are doing, the other conditions of employment, or the presence of site-specific amenities will distort the measurement of labor market integration since we are no longer comparing the prices of identical commodities. As a result, observed wages may differ across locations even in a completely integrated labor market. Second, the integration of markets for finished products and/or other factors of production will tend to equalize wages even if labor is completely immobile, creating the appearance of labor market integration even where it does not exist. Samuelson, Paul A., “Prices of Factors and Goods in General Equilibrium,” Review of Economic Studies, 21(1953–1954), pp. 1–21CrossRefGoogle Scholar; and Mundell, Robert A., “International Trade and Factor Mobility,” American Economic Review, 47 (06 1957), pp. 321–35. While the similarity of wage differentials in industries in which product market arbitrage is possible, such as the metal-working trades, with those in local market industries, such as construction, indicates that product market integration was not a significant influence on local wage rates, problems of measurement are more difficult to rule out, and their possible effects on wages are considered in more detail in Section IV.Google Scholar

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

¹³ Coelho, Philip R. P. and Shepherd, James F., “Differences in Regional Prices: The United States, 1851–1880,” this JOURNAL, 34 (09 1974), pp. 551–91Google Scholar; Coelho and Shepherd, “The Impact of Regional Differences”; and Haines, Michael R., “A State and Local Consumer Price Index for the United States in 1890,” Historical Methods, 22 (Summer 1989). Unfortunately, the regional price indices constructed by Coelho and Shepherd are not sufficiently geographically disaggregated to be of direct use in examining intercity variations in retail prices. Haines reports price indices for individual cities, but his work became available too late to be employed in this study. Although the price indices I report later are based on a more restricted set of items than are those constructed by Haines, they appear quite similar for the 12 cities considered here, and no substantive changes would result from using Haines's estimates of the cost of living.Google Scholar

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 ε_ijis 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 σ_ks, (k = i, j) such that σ_ks = 1 if k = s, and σ_ks = 0 otherwise, the regression equation can be written as

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

²⁴ Great Britain Board of Trade of London, Cost of Living in American Towns, reprinted by U.S.Senate, 62nd Congress, 2nd session, S. Doc. 22, vol. 4 (Washington, DC, 1911).Google Scholar

²⁵ Beney, Margaret Ada, Differentials in Industrial Wages and Hours in the United States, National Industrial Conference Board Studies, no. 238 (New York, 1938).Google Scholar

²⁶ Coelho, Philip R. P. and Ghali, Moheb A., “The End of the North-South Wage Differential: Reply,” American Economic Review, 63 (09 1973), pp. 757–62.Google Scholar

²⁷ The low relative wage level of the semiskilled metal workers in St. Louis appears, however, to be caused by one extremely low wage occupation, machinists' helpers. Dropping this series from the estimates results in only a minor adjustment of the overall level of wages but raises the relative wages of semiskilled metal workers substantially. Excluding machinists' helpers, relative wages of semiskilled metal workers in St. Louis were 101.5 in the 1870–1874 period, around 110 between the 1875–1879 and 1885–1889 periods, and reached 133.3 in the 1895–1898 period.Google Scholar

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

³¹ Hoff and Schwabach, North American Railroads, p. 244.Google Scholar

³² Coelho and Shepherd, “Differences in Regional Prices,” pp. 573–76.Google Scholar

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

³⁷ Haber, William, Industrial Relations in the Building Industry, Wertheim Fellowship Publications, no. 3 (Cambridge, MA, 1930), pp. 97–115.Google Scholar

³⁸ U.S. Department of the Interior, Eleventh Census (1890), “Population,” part 2 (Washington, DC, 1897), pp. 630–743Google Scholar; and U.S. Department of Commerce and Labor, Bureau of the Census, Occupations at the Twelfth Census (Washington, DC, 1904), pp. 480–743.Google ScholarThe computation of unemployment rates is discussed in Rosenbloom, “Labor Market Institutions,” pp. 116–17. Unemployment rates in the Midwest exceeded those in the East in 1900, but unemployment rates in the two regions were similar in 1890. It might be hypothesized that workers are primarily concerned about the risk of unemployment during cyclical downturns, making the 1900 figures the more relevant ones and suggesting that a portion of the higher real wage in the midwestern cities compensated workers for a narrower and hence more unstable employment base. It is difficult to believe, however, that the differences in unemployment rates were large enough to account for more than a small part of the 20 to 25 percent differences in real wages between eastern and midwestern cities in the 1890s. In addition, the growth of the midwestern cities seems likely to have increased rather than reduced the diversity of employment opportunities over time, thus reducing the risk of unemployment in these cities.Google Scholar

³⁹ Rosenbloom, “Labor Market Institutions,” pp. 118–19.Google Scholar

⁴⁰ Data on country of birth are available in each of the four decennial censuses from 1880 through 1900 for all 12 cities and in 1870 for all of the cities except Paul, St.. U.S. Department of the Interior, Compendium of the Ninth Census (1870) (Washington, DC, 1872), table 20Google Scholar; U.S. Department of the Interior, Compendium of the Tenth Census (1880), part I (Washington, DC, 1872), table 33:Google ScholarU.S. Department of the Interior, Eleventh Census (1890), “Population,” part I (Washington, DC, 1897), table 34Google Scholar; and U.S. Department of Commerce and Labor, Abstract of the Twelfth Census (1900) (Washington, DC. 1904), tables 81, 82. The correlation between the log of relative real wages and the fraction of the population foreign born in the four census years (using wages in 1898 for 1900) is 0.71, while the correlation between the fraction of the foreign born from countries other than Germany, Great Britain, and Ireland is 0.45.Google Scholar

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

⁴² Pencavel, John H., “Constant-Utility Index Numbers of Real Wages,” American Economic Review, 67 (03 1977), pp. 91–100.Google Scholar

⁴³ See, for example, Hoover, Ethel D., “Retail Prices After 1850,” in Trends in the American Economy in the Nineteenth Century, National Bureau of Economic Research, Studies in Income and Wealth, vol. 24 (Princeton, 1960), pp. 140–90Google Scholar; and Coelho and Shepherd, “Differences in Regional Prices,” pp. 551–91.Google Scholar

⁴⁴ Coelho and Shepherd, “Differences in Regional Prices,” pp. 585–86, appendix table 1.Google Scholar

⁴⁵ These studies are reviewed in Williamson, Jeffrey G., “Consumer Behavior in the Nineteenth Century: Carroll D. Wright's Massachusetts Workers in 1875,” Explorations in Entrepreneurial History, 2nd series, 4 (Winter 1967), pp. 98–135.Google Scholar

⁴⁶ Coelho and Shepherd, “Differences in Regional Prices,” pp.562–64.Google Scholar

⁴⁷ U.S. Treasury Dept., The Costs of Labor and Subsistence.Google Scholar

⁴⁸ The results of these surveys are reported in U.S. Dept. of Commerce and Labor, Eighteenth Annual Report, pp. 664–845, table 1.Google Scholar