© Oxford University Press 2007 All rights reserved
Labour market integration in a pre-industrial economy: Catalonia, 1772–1816
History Faculty, University of Cambridge, Cambridge, CB3 9EF; e-mail: nm371{at}cam.ac.uk
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Abstract |
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 TOP Abstract 1 Introduction2 Rural and urban...3 Tests on labour...4 A model of...5 ConclusionsAppendixAcknowledgementsReferences |
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This paper examines labour's reward and labour market integration in Catalonia before the first Industrial Revolution. Using new quantitative evidence on urban wages, it addresses two main issues. First, what was the performance of agricultural and urban wages during the last five decades of the so-called pre-industrial period, and what consequences did wage evolution have for labourers? Second, did wage responses reflect a situation of labour market integration? The findings here support the idea that labour markets worked before the advent of the Industrial Revolution, and find resonance with wider arguments on the overall development of Catalonia.
Key Words: JEL classifications: J43 • J61 • F15 • N94
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1 Introduction |
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TOPAbstract1 Introduction2 Rural and urban...3 Tests on labour...4 A model of...5 ConclusionsAppendixAcknowledgementsReferences |
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Labour markets, it is argued, become better integrated as economies mature, due to declining transport costs and improved information flows, which lead to an increase in labour mobility. The efficiency of labour markets has implications for all the agents involved in the functioning of the economy: it levels wages across regions and thus has a role in income redistribution, it broadens the supply of skilled labour as required by different employers, and overall it helps to minimize losses in economic welfare. Specialists in development economics have been long concerned with the functioning of labour markets as a source of backwardness in developing countries, and it is therefore not surprising that economic historians deem this issue as central to the discussion of the causes of industrialization. In Britain, the commonly accepted view is that many productivity gains were achieved through labour reallocation from rural to urban areas, despite earlier traditional studies having suggested that regional markets in England were fragmented and wage gaps large during the Industrial Revolution (Hunt, 1986
). Crafts, for example, concluded that despite persisting wage gaps between industry and agriculture, labour markets were well integrated by the mid nineteenth century (Crafts, 1985). Williamson reassessed wage gaps adjusting for the cost of living in the cities and rural relief payments and the remaining differentials led him to conclude that labour market disequilibrium persisted during the Industrial Revolution, and that labour market failure was particularly acute in the South (Williamson, 1987, p.655–6). In later work, however, Williamson acknowledged that the effects these inefficiencies had on national income were relatively small (Williamson, 1990).
In France, the debate on the efficiency of labour markets has been linked to the causes of the slow industrialization of France, and has been used to determine whether it was the lack of demand from urban centres (Kindleberger's hypothesis; Kindleberger, 1964) or the lack of mobility of peasants that can explain France's late industrialization. Sicsic (1992) analysed rural-urban wage gaps to assess these two hypotheses, and surprisingly found that wage gaps in France were much smaller than in Britain or in other industrializing economies. While Sicsic's results supported Kindleberger's thesis that French industry never faced labour scarcity, they also showed that there is no direct causal link between labour market integration and industrialization.
The question of whether labour markets were integrated in the nineteenth century has stimulated very similar analysis for many other countries: Rosenbloom (1990, 2002) and Margo (2000) for the United States, Borodkin and Leonard (2000) for Russia, or Collins (1999) for India are some examples. In Spain, permanent internal migration rates remained very low during the nineteenth century (Silvestre, 2005), and historians have long tried to establish whether the agrarian or the industrial sectors are to blame (Tortella, 1987; Prados de la Escosura, 1988), although only more recently have they undertaken the specific assessment of labour market integration. Simpson (1995) led the way by analysing rural-urban wage gaps and rural migration. He documented increasing wage gaps between 1860 and 1896 driven by the faster growth of urban wages and productivity stagnation in agriculture, and identified a series of barriers to off-farm migration, such as the prevalence of partible inheritance, the success of smaller peasants in retaining their properties during the land sales of the 19th century—in contrast with the earlier enclosure movement in England- and the large supply of leased landholdings (Simpson, 1995, p.193). The scenario described by Simpson, therefore, is one of labour market inefficiencies.
Rosés and Sánchez-Alonso (2004) revisited Simpson's conclusions in a formal analysis of labour market integration. Relying on a new database on agricultural and urban real wages for 48 Spanish provinces, and using methodological tools drawn from the economic growth literature, Rosés and Sánchez-Alonso document a process of wage convergence in the second half of the nineteenth century in which migration played a very small role. Migration contributed to urban wage convergence, but not to the narrowing of agrarian wages across provinces or of the rural-urban wage gap. Instead, the authors suggest that wage convergence was caused by factor price equalization due to internal trade (Rosés and Sánchez Alonso, 2004, p.414–6). The authors carry their analysis into the twentieth century, and their results are in line with that of Silvestre (2005), who analysed labour market integration for the period 1914–1936 using the model developed by Boyer and Hatton that will be studied later in this paper. Silvestre's analysis shows different regional patterns of labour market integration, and increasing integration in the 1920s due to an increase in rural-urban migration.
All the studies mentioned above refer to the mid-late nineteenth-century. Due to data restrictions-lack of wage data at a regional level-, there are no similar analysis for pre-industrial labour markets in the Spanish or international historical literature. On one hand, the different case studies highlight that labour market efficiency is neither a necessary nor a sufficient condition for industrialization, but on the other hand they all stress the importance of understanding labour market functioning to explore the causes of industrialization or its absence. The aim of this paper is to test for labour market integration within the rural and urban sectors in pre-industrial Catalonia in the late eighteenth and early nineteenth centuries, and to assess the contribution of Catalan regional labour markets to the literature on Catalan industrialization.
In the nineteenth century, Catalonia underwent an industrial revolution with no precedents in any other Spanish region, a crucial point being the foundation of Barcelona's first steam-powered factory in 1832. The origins and timing of Catalan industrialization, however, are still debated, with three paradigms dominating the literature: one, formulated by Vilar (1966) and expanded by Torras (1984), places the origins of Catalan industrialization in the trade networks and commercial capital that began developing in the early eighteenth century; the second, supported by Nadal (1975) and expanded by Rosés (1998), emphasizes the importance of technological changes and changes in modes of production in the second third of the nineteenth century; and the third and more recent, formulated by Thomson (1992) and Sánchez (2000), points at the importance of rural industry and the domestic manufacture of cotton in the period 1780–1830.
Vilar (1966) and Torras (1984) placed the origins of Catalan industrialization in the agricultural transformation beginning in the late seventeenth century. In order to take advantage from the new international trade circuits centred in the Atlantic, the lands along the Mediterranean coast had specialized in vines, favoured by an increase in wine prices relative to those of wheat. Wine and eau-de-vie were the products on which Catalonia laid the foundations of a diversified foreign trade. Wine exports paid for those products imported from north and central Europe -mainly wheat, textiles and fish- and at the same time they served as a platform for Catalan trade penetration into America and Spain's interior market.
Those regions where the soil was not suitable to grow vines specialized in cereals and manufacture activities, stimulated by the demand increase that the vine expansion was generating. In the eighteenth century this specialization process encouraged the concentration of manufacturing activities in central Catalonia, where an important rural industry, mainly devoted to the production of wool, developed. On the other hand, viticulture specialization generated incomes that, both through increasing demand and through capital investment, contributed to the emergence of the calico-printing industry.1 This new cotton manufactures appeared in Barcelona around the 1730s, and grew over the second half of the century. Although there were some calico-printing factories outside Barcelona, it was mainly in this city where this industry concentrated. In 1784, 80 of these factories were in Barcelona and 14 in other towns in Catalonia. In 1792, Barcelona imported 1,144 tones of raw cotton and 882 tones of spun yarn, which equalled a 16% of British needs (Vilar, 1974, p.9).
The basis of Catalan industrialization, according to this paradigm, laid on regional specialization and product market integration. This paper emphasizes labour market integration, another crucial aspect to understand Catalan economic performance. Studying labour market integration means looking at the speed at which profitable wage differentials are arbitraged away or, in other words, studying how wage shocks are transmitted through spatially separated markets. This paper will apply different measures of labour market integration to Catalan pre-industrial labour markets.
Section 2 describes some key features of early nineteenth-century Catalonia: I argue that wages in the calico-printing industry, the fastest growing sector at the moment, can be representative of urban unskilled wages; and describe the sources and methodology used to construct a wage series for Barcelona. The evolution of nominal and real wages is discussed, and estimates of the rural-urban wage ratio are provided, as well as some theoretical explanations of the existence of a wage gap between farm and city. The empirical analysis of labour market integration is carried out in the next two sections.
Section 3 tackles the issue of migration and labour market integration. Although it is common knowledge that Barcelona was a city with a high inflow of immigrants, there is no annual data on migration. In order to analyse labour market integration, therefore, approaches such as convergence and cointegration analysis are used. The results of the first are not conclusive, but the latter supports the hypothesis of labour market integration. Section 4 uses an error correction model drawn from a specific economic model to analyse the nature of the long-run relationship between wages in different regions. The assumption here is that there may be labour market integration even with a persistent wage gap, and the findings further support the idea that markets worked before the advent of the Industrial Revolution. The results are summarized in the conclusions.
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2 Rural and urban wages in Catalonia |
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TOPAbstract1 Introduction2 Rural and urban...3 Tests on labour...4 A model of...5 ConclusionsAppendixAcknowledgementsReferences |
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During the eighteenth-century, Barcelona's population had more than trebled. In 1787, the city had approximately 90,000 inhabitants, which represented 10% of Catalonia's population. Barcelona, besides being the regional administrative centre, was mainly a trading centre, a post from which products were exported to European and American markets and imports were distributed to the interior of Catalonia. Moreover, the population concentrated in Barcelona made of it an important centre of consumption of food, raw materials and manufactures, either imported from abroad or produced in the regional markets. Nevertheless, the most distinctive feature of the city was the calico-printing industry: nearly all of Spanish calico printing was established in Barcelona, which probably also contained by the 1780s the largest concentration of calico printing in continental Europe (Thomson, 1992
, p.59). The growth of this manufacture also brought many changes to the organization of labour. For the first time, tens (and hundreds in some cases) of labourers worked under the same roof under managerial supervision to take advantage of the economies of scale brought by the division and co-ordination of the different tasks.
The number of workers mobilized by the textile industry in this period gradually increased. A questionnaire circulated to the manufacturers in 1784 shows that the labour force employed in the calico-printing factories consisted of 8,638 workers, which means that this cotton industry employed, by the end of the eighteenth-century, almost 10% of Barcelona's total population (Miguel López, 1999, p.43), and the figure would be higher if only active population was to be counted. According to contemporaries, the growth of the textile sector was also having effects on the agricultural labour supply, where producers were facing a ‘lack of hands’ due to ‘the attraction that numerous calico-printing factories in the city exercised on the inhabitants of the country’ (Thomson, 1992, p.230). Calico-printing factories, thus, served (or were seen) as a catalyst for major changes taking place in the labour conditions of other sectors, and that is one of the premises of this paper: that this textile industry can adequately represent changes occurring within the urban labour market. It contributes additionally to the analysis of labour market evolution, being the leading sector in the long period of industrialization and the catalyst for structural change in the local economy.
The first approach to labour market integration will be carried out through the analysis of wages. Classically, it is assumed that if there is perfect mobility between two locations then wages, suitably adjusted, should be the same in each location. Adjustment should be made for many reasons including: differences in the cost of living, wage-earning opportunities for other members of the family and even non-wage characteristics of the location (Hatton and Williamson, 1991). The theory of compensating differentials lays behind this assumption: workers assign a value to the characteristics of both their job and the city they live in, so that factors such as unemployment, urban disamenities, or health risks at work would demand higher wages. Consequently, if workers are perfectly mobile between two locations, the value of a specific task –that is, the wage plus or minus the value of the job and location characteristics- should equalize. A remaining gap would be a measure of market failure. The main problem with this approach is that it is unlikely that all this factors can be measured. Bearing these limitations in mind, I have carried out an analysis comparing nominal and real wages paid in the calico-printing factories in Barcelona and agricultural wages in two rural areas of Catalonia.
First I calculate a series of wage rates for unskilled urban labourers in the calico-printing industry, chosen because it was the fastest growing sector at the end of the eighteenth century and its contribution to the growth of the urban economy was clearly high, as explained above. There is not, however, a single wage for calico-printing labourers. The large labour force that worked for the calico-printing factories was organized on the basis of an extensive division of labour, and wage rates differed among categories.2 However, a line can be drawn between hard physical work -washing cloths, or carrying, stretching and folding them- and precision work -designing, engraving the blocks and the rollers, and printing the fabrics- (Chapman and Chassagne, 1981, p.176). I have targeted the first group because these are the positions open to immigrants with no specific skills, and the focus is on urban wages as an incentive to migration. The tasks done by these men, known as ‘men of the meadow’ in the factory documents, did not differ much from those of an agricultural labourer. Men of the meadow manipulated the wet clothes, carried them from one place to another, and levelled out the sand to spread out the fabrics on the grass and expose them to the sun.
The accountant registered wages paid in calico printing factories in notebooks, some of which are preserved in Barcelona's archives. The main advantage of the source is its regularity and uniformity, both across factories and across time. Each week the name of the labourer, the category to which he belonged, and the weekly amounts paid were registered. The number of days worked was in many occasions left out and assumed to be six, otherwise it was stated and the weekly payment, of course, reduced.
The wage rate is at least a proxy of the average daily income that a worker got for a specific task. The size of the sample studied further reinforces the strength of the results. More than 40,000 entries on daily wages have been collected covering the period from 1772 to 1816 from six different factories on a weekly basis: Ribas, Formentí, Sirés, Pujadas, Gònima, and Rull. The Appendix shows which of these factories provide data for each year. Average daily wages have been calculated annually for each of the factories providing this information. Since wage levels can differ across factories and since factory information is not uniform across time, it would not be appropriate to just average across factories to obtain a final annual figure or a final wage index series. This can be illustrated with an example. The Gònima factory (the largest one) generally paid higher wages than the rest of the factories. In 1798, wage data for the men of the meadow is available for the Ribas factory, which gives an average wage of 13.13 sous, and for the Gònima factory, with a wage of 19.49 sous. In 1799, only data for the Gònima factory are available, and the average wage is 18.03 sous. If we average both factories for 1798 we get a wage of 16.31 sous, which compared to a wage of 18.03 sous in 1799 gives us an increase of more than 10% in the average wage. This is obviously misleading, and it is only the result of having a low-wage factory removed from the sample. Between 1798 and 1799 wages probably decreased, as data from the Gònima factory seem to indicate. In order to prevent differences in wages between factories from contaminating the series, I have used a chained index to obtain a final wage rate for each year. This index links the wage series of the different factories, to form a single continuous series that has a single reference year (1791, when information from four factories is available) but a number of underlying base years, those when a new factory enters the sample. The nominal wages series is given in the appendix.
Figure 1 shows the evolution of the nominal wages index in Barcelona and compares it to daily agricultural wages in two regions, the East and the West. In broad terms these two regions represent agricultural specialization in different crops: most of the lands of the East were devoted to winegrowing, whereas on the lands of the west cereals were cultivated.
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The most prominent feature of Fig. 1 is the clear increase of nominal wages during these more than forty years. Nominal wages nearly double in the two agricultural regions, and there is a fivefold increase of the urban wage. The relevance of these results, however, is relative. On one hand, the increase in nominal wages is a phenomenon observed since the beginning of the century, although growth is higher in these last decades. On the other hand, it is clear that nominal wages do not depict the behaviour of the real economy: in a period of high inflation such as the one studied here, an increase in wages could just reflect an increase in commodity prices. Similarly, the existence of nominal wage gaps between farm and city employment does not allow reaching definitive conclusions, for it is the real wage that is the relevant piece of evidence.
The empirical problems associated with the calculation of real wages have been underlined elsewhere.3 The definition of an adequate cost of living index for a society is already complex, but the scarcity of data available for pre-industrial economies further complicates the task. It has been argued that for the pre-industrial age the price of the most widespread type of cereals is acceptable as a measure of purchasing power (Scholliers and Zamagni, 1995, p.10). Therefore, wheat, the most popular of bread grains, has been chosen here as proxy for the cost of living. Nominal wages of each of the three regions presented above have been deflated with the price of wheat in each of these three regions, and the outcome is the series of real wages plotted in Fig. 2.
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A first glance to the series shows that, despite sharp short-run variations, the level of real wages did not vary after these decades. The trend line is a flat one for all regions, the result of a combination of increasing nominal wages and increasing prices of foodstuffs. The sharp fall after 1808 and its posterior recovery reflect a situation of war (the War of Independence). The conclusion reached is that at the beginning of the nineteenth century, after several inflationary decades and with a population that had more than trebled, Catalonia's real wages might not have risen, but had resisted any fall.
Since the focus of this paper is the functioning of the labour market, the next step is to study the evolution of wage gaps between farm and city. Figure 3 shows the evolution of the rural-urban real wage ratio in Catalonia. Rural wages are, as expected, lower than urban wages for most of the period, with the exception of the first years of the War of Independence, when rural wages remained almost stable and urban wages began to fall, and at the same time the price of foodstuffs in Barcelona was growing faster than in the countryside (which might have driven the differential). The average wage ratio between the East and Barcelona was 0.96, and that between the West and Barcelona 0.89. This points to a similar or smaller wage gap than that found for other countries, as shown in Table 1. Sicsic (1992), for example, found virtually no wage gap in France between farm and the city for 1852, although this increased by the end of the century. Wage gaps within regions might be more directly comparable to the Catalan data. Wage gaps in the region of Paris or Lyon are not smaller than in Catalonia. The wage gap in the South of England, however, seems to be much higher than that found for Catalonia, especially if urban disamenities premia are not accounted for. It is, however, difficult to make comparisons in this sense across countries or regions, since the methodology underlying the calculation of the wage gap differs, as does the timing of industrialization in different countries.
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What are the reasons underlying these wage gaps and how can real wage differences be explained? Are they the manifestation of disequilibrium distortions or the result of equilibrium earning differentials? Williamson (1997
) offers a survey of the literature on disequilibrium distortions. The main argument, developed by Everett Hagen at the end of the 1950s, is that these wage differentials are the result of unbalanced growth in the derived demand for labour. Rapid industrialization creates an excess demand for labour in urban sectors, while lagging labour demand in agriculture creates an excess supply in rural sectors. Migration is never adequate to clear completely the two markets in any one year and thus the unbalanced growth persists, and a disequilibrium wage distortion emerges. However, both Williamson (which relies on data for the United States between 1890 and 1941) and Boyer and Hatton are more inclined to conclude that wage gaps between farm and city are a result of equilibrium earnings differentials as described by the Todaro model, in which the agricultural-urban wage ratio is adjusted by the rate of unemployment. Differences in the probability of experiencing unemployment affect expected incomes and would influence the equilibrium wage ratio. There is, however, no data available yet for unemployment in eighteenth century Catalonia, and studying its influence in the determination of wage gaps will need further research. There are several factors that can account for the real wage gaps between regions observed in Fig. 3, some mainly related to the wrong specification of the data. In first place, it has been already mentioned that the wage does not equal individual earnings (especially in rural zones), and of course does not account for family earnings. In second place, it is clear that real wage gaps as in Fig. 3 would be reduced had a more adequate cost of living index been calculated (like one including dwelling rents, for example) and had urban disamenities been accounted for. A higher cost of living in the city or the penalties of living in a urban environment would reduce the wage gap. Furthermore, the type of remuneration here analysed are daily wages, and given that the number of working days a year might differ between urban and rural workers, some additional divergence might appear.4 Still, the scarcity of data should not prevent us from trying to find an answer to the question of whether labour markets ‘failed’ or not, and in the next section I analyse alternative approaches to testing labour market integration. The steps involved will be to first perform a wage convergence analysis, move then to a study of nominal wage elasticities and finally pursue a cointegration analysis in order to obtain more robust evidence on the links between Catalan labour markets. Eventually, the results of this test allow us to use an error correction model to address with greater accuracy the issue of labour market integration.
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3 Tests on labour market integration |
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TOPAbstract1 Introduction2 Rural and urban...3 Tests on labour...4 A model of...5 ConclusionsAppendixAcknowledgementsReferences |
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The first straightforward question when looking for labour market integration is whether regional wages tended to converge. There are several approaches to convergence that can be drawn from the economic literature, although no single one holds unanimous support. Barro and Sala-i-Martin (1995
) identified two notions of convergence. The first one, derived from the neoclassical growth model developed by Solow in 1956, is the concept of ß-convergence, which measures whether initially poorer regions grow faster than richer regions. With regard to wages, it implies that wages tend to grow faster in those regions where labour's reward is originally lower, eventually catching-up with higher-wage regions. The problem with the analysis of ß-convergence is that it is very sensitive to the first observation (or alternatively, to the year chosen as the first one in the sample), especially if the number of regions considered is small. Additionally, it requires a substantial number of regions/countries to be included in the analysis for the regression to be on firm foundations. Since this paper considers only three regions, an analysis of ß-convergence would not be conclusive.
The second concept of convergence, 
-convergence, refers to the decline of cross-sectional dispersion of data over time, typically measured as the evolution of the coefficient of variation over time. Figure 4 shows the variability of the dispersion of Catalan wages over time. The coefficient of variation fluctuates around a mean of 0.17, and there is no evidence of -convergence; indeed, the coefficient of variation shows a weak positive trend, which would imply -divergence, but no significant results arise from its regression on a time trend. Still, in perfectly integrated markets -convergence could not show any trend at all. Additionally, Boyer and Hatton have argued that labour market integration and wage convergence are not the same thing. Divergence can occur if trends in labour demand dominate the supply response or if the rate of natural increase in one region is permanently higher than in another (Boyer and Hatton, 1997). The absence of wage convergence is not conclusive evidence against labour market integration.
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An alternative test for convergence -which has the advantage of providing more information in terms of uncovering the forces driving the rural-urban wage gap-, is an elasticities analysis of nominal wages. The coefficient of variation of nominal wages ranges from 0.24 in the west to 0.30 in Barcelona. The absence of collective bargaining, the high turnover and the dependence on international demand in calico-printing factories are amongst the causes of the high variation of wages observed in this industry. Agricultural labourers’ market was also a dynamic one. The evidence seems to suggest that agricultural labourers were hired in a spot labour market. Agreements from these subcontracts were, due to the seasonality of agricultural tasks, short-term, therefore freeing labourers when activity was low. During the harvest, however, the increase in the demand for labour might have shifted bargaining power in favour of the workers. The evidence seems to suggest that Catalan agricultural labour markets did not conform to the definition of agricultural labour markets in the Lewis model, where wages are kept at subsistence level and the supply of labour is unlimited. A report written in 1787 by the mayor of Vilafranca del Penedès (a wine-producing region), in which he describes the way landowners hire labourers and the complaints arising from the latter's behaviour, illustrates this point:
I have observed that the labourers of this village go together early in the morning to the square, where the landowners are looking for them to offer them a day of work, and stay there talking, slacking, haggling over the daily wage, and wasting their time until the landowners accept the wage proposed; even after this the labourers go back to their houses to have breakfast, so that when they arrive in the fields it is at least 9 am in winter and 7am in summer. ... The labourers should agree upon the wage with the landowner the previous night, when landowners are looking for them, but they just answer that they will talk about it the next morning at the square.5
Hatton and Williamson (1991, p.417), find that with the exception of Germany every country in their sample exhibits higher standard deviations for farm wages than for industrial wages, for which the authors tend to conclude that the hypothesis that farm wages were ‘flexible’ whereas industrial wages were ‘sticky’ is grounded. Since in the case of Catalonia standard deviations are high for all regions, further analysis is required to see whether wages in the different regions are flexible enough. Following Hatton and Williamson's analysis (1991) of urban and rural nominal wages for eight countries and different time periods covering the nineteenth and twentieth centuries, Table 2 shows the relationship between changes in nominal wages in the different regions and changes in the wage ratio. The first row in the table shows the strong correlation between the different regional wages, indicating, as expected, that they moved together. The second and third rows report the correlation coefficients between changes in the rural-urban wage ratio and in each of its two components. As would be expected, it shows that an increase in farm wages is always correlated positively with a change in the farm-to-city wage ratio. That is, when farm wages rose, the rural-urban wage gap diminished. The symmetric relationship holds for the urban wage, which was inversely correlated with the farm-to-city wage ratio. The lower values of this correlation coefficient indicate that farm wages were more flexible and were adequately responding to urban labour market conditions. The comparison between the two rural zones highlights the higher variability of western wages.
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In order to illustrate the long-run performance of the log of the wage ratio (as opposed to the relations between differences explored above), the log wage ratio was regressed on a time trend, but the coefficients were not significantly different from zero for any of the pairs of regions. I turned, therefore, to a cointegration analysis to see whether the wage ratio showed a tendency to return to some equilibrium after labour demand and supply shocks. Row (4) in Table 2 shows the Durbin-Watson statistic from the cointegrating regression (CRDW), which tests for the null hypothesis that the log wage ratio is a random walk. The cointegrating regression is log(Wi/Wj)t =
+ et, which imposes a cointegrating coefficient of 1. Row (5) reports the alternative test for cointegration, the augmented Dickey-Fuller test (ADF), which tests for unit roots, the origin of non-stationary processes that are not mean reverting and have variances that increase with the number of observations. The results of the test allow us to reject the null hypothesis. In other words, there is evidence of a mean reversion process, that is, of equilibrium to which the log wage ratio returns although shocks may push it away temporarily. |
4 A model of labour market integration |
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TOPAbstract1 Introduction2 Rural and urban...3 Tests on labour...4 A model of...5 ConclusionsAppendixAcknowledgementsReferences |
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Boyer and Hatton (1997
) provide a framework within which to study the factors that determine individual decisions to migrate. Unsurprisingly, the different empirical studies analysed and conducted in this article, mainly referring to late nineteenth century England and Wales, find that migrants responded to economic incentives, moving from low-wage agricultural counties to high-wage urban areas. The wage was a factor (but not the only one) taken into account in the decision to migrate. The distance between the origin and destination place, and the existence of a previous stock of migrants from the same village (friends or relatives who could facilitate integration into the city) also counted. Many studies have viewed migration as a problem of individual decision-making. The main idea behind this approach is that migration is an investment, with costs and returns. Depending on the subjective predictions of the potential migrants and on the available information for them, they decide whether or not to move. Typically, migrants are young single adults. This pattern has to be understood in the light of the rationality framework mentioned above. By moving when they are single, they are free from burdens, mainly children, which would undermine the returns from migration. By moving when they are young, they are facing more years ahead to get the returns of migration, that is, if they are moving for a wage or higher earnings, they will be getting this higher remuneration for a longer period of time. It therefore follows that urban centres with high migration inflows should present higher proportions of young adult population than those regions with positive outmigration rates.
Table 3 compares the age distributions in Barcelona and in the rest of Catalonia. The age groups are those corresponding to the answers given to the census of Floridablanca in 1787. Clearly, Barcelona's share of both very young people (under 16) and old people (over 50) is lower than in the rest of the region. Furthermore, the proportion of Barcelona's population aged sixteen to forty, who are those more able to work, is 45.95%, nearly half of the population of the city, whereas this proportion is reduced to a third (33.87%) in the rural environment. These differences in the age distribution reflect, on one hand, higher mortality rates in the city-particularly infant mortality-, and on the other hand the weight of migration inflows in the young adult segment of the population in Barcelona. Williamson (1988) has carried the same exercise for the British case, although with purposes of comparison with Third World countries. He found that the share of people in their 20s and 30s in London in 1861 was almost 34%, a figure which seems to be similar to the one for Barcelona at the end of the eighteenth century. Larger shares of young adults, Williamson says, imply lower dependency rates, higher per capita incomes, and higher labour participation rates, which can help to explain the dynamism of the city. In the long run, this young-adult bias would increase the ability of the cities to satisfy their growing labour force requirements by natural increase, thus diminishing their need for more immigrants. In the short-run, migration of young adults to the cities might have also eased interregional factor market disequilibria induced by the Industrial Revolution (Williamson, 1988, p.300).
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There are not, however, continuous series of interregional migration in pre-industrial Catalonia, and the only data available to test for the arbitrage of labour markets are regional wages. Boyer and Hatton (1994
) have developed a model that allows testing for labour market integration without data on migration, and serves therefore as a tool to approach the issue of market failures in pre-industrial economies. Theirs is an error correction model, which is adequate for cointegrated variables, and their model and the steps they used to develop it are described in the following paragraphs.
For two given regions (i, j), assume labour market demand (Ld) in a given market depends on wages (W) and other demand shift factors, such as output prices (D) in such a way that:
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(changes in labour demand must equal changes in labour supply) for both markets gives the following:
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Using eqs (3) and (4) to eliminate m, Boyer and Hatton obtain
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D reflects demand conditions that are not in the estimating equation. If the variables driving labour demand are integrated of order 1 (as frequently happens with price series) then D will be integrated of order 0 and will form a random disturbance. Taking into account this, and treating n and k as constant, eq. (6) can be simplified as
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This error correction model distinguishes between short-term and long-term effects. The differenced variables are generally considered stationary, and define short-run dynamics, while the lagged variable ensures coherence with a long run equilibrium relationship. Taking the three Catalan regions already used for the description of wages, Table 4 examines the time series relationships between the combinations of pairs of these regions.
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The columns in Table 4 show the basic error correction model as expressed in the equation above. In all cases the coefficients obtained from the regression show the expected signs and are statistically significant at a 5% level. The three regions exhibit evidence of high integration -the coefficients on log(Wi/Wj)t-1 are considerably large in all regressions- although the strongest integration is found in the East with the West, the two agricultural markets. It is worth stressing, for comparative purposes, that the most integrated pair of regions found by Boyer and Hatton (1994
, p.97) in Britain was that formed by the agricultural regions of the Midlands and the South, with a coefficient of 0.51, considerably lower than the resulting coefficients in Catalonia.
Boyer and Hatton (1994, p.99; 1997, p.723) suggested a variant of this basic model. It might not be appropriate to assume that the constant term can be treated as such. It can be shown that the constant term depends on the migration elasticity, the demand factors (such as technical progress or price outputs) and the rate of natural increase in region i.6 If the latter, for example, were accelerating in rural regions, there would be a negative and significant time trend component in the model. However, a time trend was included and it did not show any significant results.
The positive sign of the coefficient on the 
logWjt term (ß1 in the equation) suggests that common shocks arising from changes in labour supply or demand were important in regional labour markets. It is likely that these arose on the demand side: the three regions considered coincide in broad terms with three products’ markets: grain, wine and cotton. Wine specialization would generate rents that increased the demand for cotton. A production increase in both sectors required the specialization of the west in cereals to provide food to the east of Catalonia; therefore, the demand for labour would grow in parallel. Moreover, both wine and cotton demand depended largely on an external factor, international trade, and fluctuations in international demand might have operated in the same direction in the three markets.
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5 Conclusions |
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The different tests above indicate that there existed a considerable degree of integration among Catalan regional labour markets, in spite of persisting wage differentials. Rural-urban wage ratios returned to equilibrium despite unbalanced demand shocks. In the absence of data on rural-urban migration, the causes of labour market integration cannot be ascertained. On one hand, as recorded by contemporaries, it could be that agricultural labourers moved to Barcelona to take advantage of the opportunities created there by the growing textile sector, expressed in higher wages. On the other hand, trade and product market integration could, even in the absence of labour mobility, lead to factor price equilibrium. This would find resonance with wider arguments on the overall development of Catalonia, be it Vilar-Torras’ paradigm, which tended to focus on the product markets, or Thomson's thesis, which emphasizes the importance of rural industry. If changes in the demand of one good (be it wine, wheat or cotton) were positively correlated with changes in the demand of the other goods through trade, then wages would also be positively correlated. The results are also consistent with an alternative model that included proto-industrial activities in the rural regions. In such case, and increase in the demand for cotton goods would increase wages in cotton, and in rural zones manufacturers and farmers would have to compete for workers, which would increase wages in both sectors. This paper has highlighted the early development of Catalan labour markets, and therefore emphasized the decades before advent of the factory system as crucial in understanding Catalan industrialization, but analysing the causes of labour market integration and discriminating between competing theories on Catalan industrialization remains in the research agenda.
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Appendix |
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TOPAbstract1 Introduction2 Rural and urban...3 Tests on labour...4 A model of...5 ConclusionsAppendixAcknowledgementsReferences |
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Table A1 Unskilled labourers' daily wages in the calico-printing factories of Barcelona (1791 = 100)
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Notes: n.a. indicates years for which wage information is not available. Nominal wages for these years were interpolated using the cumulative annual growth rate of the period, according to Wt = W0(1 + r)t.
The average nominal wage in 1791 is 13.76 sous.
Sources: Arxiu Històric de la Ciutat de Barcelona, Biblioteca de Catalunya.
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Acknowledgements |
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This work has benefited from comments by and discussions with Jane Humphries, Enriqueta Camps, Knick Harley, Bob Allen, Joan Ramon Rosés, and Tommy Murphy, as well as two anonymous referees. Remaining errors are, of course, my own.
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Notes |
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1 When referring to calico printing, the terms ‘industry’ and ‘manufacture’ will be used indistinctly, although the sector was not a modern industry. Similarly, the term ‘factory’ will be applied to the centres of production of printed calicoes, which formally are not modern factories but centralized manufactures.
2 A memorandum drawn up in 1780 identified eighteen different categories of individuals, which regularly tended to form the total of workers that composes a calico-printing manufacture (Sánchez, 1993, p.175).
3 Scholliers (1989) directly tackles methodological problems of the formation of the wage. Scholliers and Zamagni (1995) is a compilation of case studies; each of them points at the difficulties encountered in the research.
4 In this case, however, the difference in number of days worked per year might be negligible. Cerdà (1968), a contemporary describing working conditions in 1856, estimated that agricultural labourers and labourers in the calico-printing factories worked 242 and 249 days a year respectively, an almost negligible difference.
5 Archivo General de Simancas, Gracia y Justicia, legajo 336 [Consultation of this document was possible thanks to the generosity of Jaume Torras].
6 We see in eq. (6) that the constant term depends, amongst others, on the rate of natural increase –positively- and on other demand factors –negatively-. Therefore, if the rate of population growth increased over time or labour demand growth slowed down, the term would need a negative correction term dependent on time. Note that the model used in the text is adapted from Boyer and Hatton (1994) and not from Boyer and Hatton (1997), where due to modifications the constant term equals (r-n)/, and where subsequently the same circumstances analysed above would be reflected in a positive time trend coefficient.
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