Ebook Earnings Inequality in Late Nineteenth Century America
This paper studies the level and the causes of earnings inequality in late nineteenth century America and Britain using a cross section microdata from the United States Commissioner of Labor Survey (1891, 1892), below denoted as COLS data. To be precise, this paper focuses on the role of returns to skill in explaining the differences in American and British earnings inequality in the late nineteenth century.
The majority of previous papers on earnings (or income) inequality examine the changes in inequality over time in an explicitly historical context for particular countries. In several papers, Williamson and Lindert suggest that the earnings inequality of both America and Britain followed a Kuznets inverted U pattern. They argue that British and American earnings inequality increased until the mid-nineteenth century and World War I, respectively, and decreased thereafter (Williamson (1980), Williamson and Lindert (1980, p. 95)).
Examining the sources of the changes in earnings inequality over time, Williamson and Lindert (e.g., Williamson (1976), Lindert and Williamson (1985)) pay attention to both the demand and supply of skilled and unskilled workers. Lindert and Williamson (1985) provide an interesting explanation why Britain underwent a leveling of earnings inequality at the mid-nineteenth century, while the American leveling occurred after World War I. They argue that the source of Britain's earlier leveling is the decrease in demand for skilled workers caused by a productivity slowdown and the lack of immigration of unskilled workers to Britain (Lindert and Williamson (1985, p. 368)). This contrasts with the American situation. As a result of the interaction of demand and supply of skilled and unskilled workers, the wage gap (skill wage premium) between skill groups decreased in Britain while the gap was still high in America in the late nineteenth century.
From Williamson and Lindert's explanation on American and British earnings inequality in the late nineteenth century, we may infer that, first, skill is a very important factor in explaining changes earnings inequality over time and, second, the changes in earnings inequality are mainly explained by the changes in the skill wage premium. Note that Williamson and Lindert's explanation was drawn by separately examining changes in earnings inequality for each country. It may be interesting to ask whether the explanation of Williamson and Lindert can be verified from a comparative study based on cross section data from the late nineteenth century (COLS data). To be precise, we ask two questions.
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