Labor Markets in the Twentieth Century (original) (raw)

2000, The Cambridge Economic History of the United States

of unemployment insurance enabling workers to search longer. The increase in long-term unemployment remains perplexing and disturbing. The growth in labor=s standard of living and well-being across the twentieth century was not always shared equally by skill, region, race, and sex. The wage structure probably widened until sometime in the second or third decades of this century, although the evidence is still inconclusive. The evidence is clear that the wage structure narrowed rapidly in the 1940s and then remained relatively stable from 1950 to the mid-1970s. The wage structure expanded significantly since then becoming as unequal by 1994 as it was 55 years ago. We know far less about the conjectured widening of the wage structure from the late-nineteenth century to the 1920s. The arrival of vast numbers of lesser-skilled immigrant men in the 1900 to 1914 period probably depressed the wages of unskilled men and may also have lowered the wages of the skilled in industries capable of adopting the assembly-line machinery of that era. There is also evidence that immigrants put downward pressure on the wages of craft workers, such as building tradesmen. The growth of big business with its demands for office and other white-collar workers would also have worked to widen skill differentials in the early twentieth century before high school enrollment soared in the 1920s. Regional disparities in wages and the rural-urban differential diminished over time. Racial differences narrowed when the general wage structure was compressed in the 1940s and again in the mid-1960s to the 1970s. The ratio of male to female full-time earnings decreased during several periods in the twentieth century. But the periods differ from those of racial and general wage structure narrowing because sex differences are affected, in a complex manner, by changes in the participation of women in the labor force. To summarize, wage differences by region, sex, and race narrowed over the past century, but the wage structure for all Americans probably first widened, then narrowed substantially in the 1940s, before widening again in the Goldin-5post-1975 period. Although the returns to education generally follow a path similar to that of the entire wage structure, there is evidence that the wage premium to ordinary white collar work declined in the early 1920s (Goldin and Katz 1995). Wage differences by industry C termed the interindustry wage differential C have existed at least for the past fifty, and possibly one hundred, years. Particular industries pay higher wages across the skill hierarchy, given worker characteristics. Such differences apparently defy the notion that labor markets clear since, presumably, employers ought to be indifferent between hiring workers having identical observable characteristics. The existence of wages apparently above the market-clearing level has been offered in support of the notion that wages serve purposes other than that of clearing markets and that there is not one labor market but many noncompeting ones. AGood@ jobs, it is claimed, offer wages above the market-clearing level as an incentive for workers to reduce turnover, shirking, and malfeasance, and to increase effort. Because industries having more concentrated product markets are disproportionately those with higher wages, the interindustry wage differential could also indicate that some industry rents accrue to labor. Government intervention in the labor market, both at the state and federal levels has emerged with increasing importance and significance across the past hundred years and has taken numerous forms. There has been legislation establishing social insurance (e.g., Unemployment Insurance, Social Security Act, and Workers= Compensation at the state level), protecting workers (e.g., Occupational Safety and Health Administration [OSHA], child labor laws), enabling and defining union activity (e.g., Wagner Act), restricting laborer=s wage and hours contracts (e.g., the minimum wage and overtime payment sections in the Fair Labor Standards Act), and limiting competition from abroad (e.g., 1924 and 1929 National Origins Acts restricting immigration). Much of this chapter will put forward the case that, with some Goldin-6exceptions, labor=s gains and labor market changes over the past century have, by and large, arisen from an unrestricted, laissez faire market. Yet policy interventions seem far reaching. How, then, can one claim that the bulk of labor=s gains and labor market evolutions would have occurred in the absence of legislation? Government intervention often reinforced existing trends, as in the decline of child labor, the narrowing of the wage structure, and the decrease in hours of work. Legislation often enabled the completion of markets that are more viable today than in the past, such as those for insurance and pensions. In several cases, legislation may have had unintended consequences, such as in the increase in industrial accidents, in certain industries, with the implementation of Workers= Compensation laws in the various states. It should be emphasized that while the majority of labor=s gains and changes in labor force participation would have occurred without legislation, legislation was enabling and often did make a difference. Black-white differences in incomes, for example, were narrowed by the 1964 Civil Rights Act and by affirmative action and federal contract compliance. Hours declines in the 1910s and 1920s occurred in states having maximum hours legislation affecting women only (Goldin 1988). Oddly enough, given the many impressive pieces of legislation that have affected labor, two less obvious ones probably had the greatest impact on labor=s overall gains. One is publiclyprovided education particularly at the secondary-school level, and the other is immigration restriction. Publicly-funded schools cheapened the cost of education through scale economies, it redistributed income through taxation, and it encouraged the schooling of children from poor families by its free provision. 2 European immigration restriction legislation came first in the form of the literacy test in 1917 and later through quotas in 1921, 1924, and 1929. The quotas kept the masses at bay when decreased ocean transport and railroad fares would have enabled Goldin-7international labor mobility on an even grander scale than during the height of immigration in the early 1900s. It was also a time when the goods produced by low-wage countries were poor substitutes for those produced in the United States, quite unlike circumstances today. In the absence of aggressive policy in these two areas, particularly education, the labor market would have evolved very differently. The history of the past century seems to be coming full circle in various ways. Unionization in the private sector has returned to the level achieved immediately before the Wagner Act. Net immigration as a percentage of net population growth is at historic levels and exceeds that at the turn of the century. The wage structure has stretched significantly and may be as wide as at its peak, sometime in the 1920s or 1930s. Inequality, it should be noted, has also widened in many other OECD countries but the increase in America far exceeds that elsewhere. American business currently claims that U.S. high schools produce workers with inadequate basic skills for a high-tech work place. Their arguments echo those made in the early 1900s just before the United States expanded its educational system at the secondary level and embraced educational tracking but not a multi-tiered system with industrial training, as existed in Germany. Finally, the rate of labor productivity advance and wage growth for low-wage workers during the past 15 years looks more like that achieved sometime during 1900 to 1920 than in the three decades following World War II. Many claim that the ills of the American economy in the 1990s are legacies of the period when we first rose to world industrial supremacy. We achieved leadership around 1910 and maintained it, in part, through our pioneering techniques using large scale, mass production, and the assembly line. Through an intricate division of labor, lesser-skilled labor was substituted for higher-skilled workers. 3 Some assert, however, that these methods, often still practiced in the United States, are out of touch with the technologies of the 1990s, and that small scale, flexible