Is Wage Rate Dispersion a Good Index of Labor Market Integration? A Comment on Rothenberg

Abstract

In a recent article in this JOURNAL, Winifred Rothenberg seeks to document emergence of rural labor markets in late eighteenth and early nineteenth-century New England.' Examining a rich body of wage data which she has collected from account books of farmers, Rothenberg traces first temporal variations in dispersion of wages, and then pattern of variation in nominal and real wage rates over more than one hundred years. These aggregative measures of operation of labor do not begin to exhaust potential of data which Rothenberg has accumulated, however, and I look forward to further and more detailed examinations of behavior of farm wages in antebellum New England. Since such research is likely to be directed by interpretation placed on broad trends documented in her article, I offer following comments to suggest fruitful lines of research. According to Rothenberg, existence of a market process can be confirmed by a trend decline in dispersion of wage rates-as measured by coefficient of variation. Rather than finding a monotonic trend convergence in this measure, however, she finds that dispersion of general farm labor wage rates increased in first half of period, reaching a peak sometime shortly after 1800, and then declined. While onset of decline after this peak might indicate the emergence of a for farm labor by 1800. . as Rothenberg proposes, other interpretations of inverted-U shape pattern of wage dispersion are possible.2 In her article, Rothenberg identifies and dismisses two alternative explanations for inverted-U shape of dispersion over time: (1) that it is a statistical artifact produced by greater number of wage observations in middle years of sample, and (2) that it is result of a temporary increase in wage dispersion caused by macroeconomic disturbances of Revolutionary War. These alternatives do not exhaust possibilities, however. Let me suggest two other explanations that need to be considered before we can firmly establish hypothesis that decline in wage dispersion after 1800 was a reflection of what Rothenberg terms market process.