A few months ago, I discussed the work of my friend (and fellow LSE graduate) Judy Stephenson on the “high-wage economy” of England during the 18th century. The high-wage argument basically states that high wages relative to capital incite management to find new techniques of production and that, as a result, the industrial revolution could be initiated. Its a crude summary (I am not doing it justice here), but its roughly accurate.
In her work, Judy basically indicated that the “high-wage economy” observed in the data was a statistical artifact. The wage rates historians have been using are not wage rates, they’re contract rates that include an overhead for contractors who hired the works. The wage rates were below the contract rates in an amplitude sufficient to damage the high-wage narrative.
A few days ago, Jane Humphries (who has been a great inspiration for Judy and whose work I have been discretely following for years) and Jacob Weisdorf came out with a new working paper on the issue that have reinforced my skepticism of the wages regarding England. A crude summary of Humphries and Weisdorf’s paper goes as such: preindustrial labor markets had search costs, workers were willing to sacrifice on the daily wage rate (lower w) in order to obtain steady employment (greater L) and thus the proper variable of interest is the wage paid on annual contracts.
While their results do not affect England’s relative position (it only affects the trend of living standards in England), it shows that there are flaws in the data. These flaws should give us pause before proposing a strong theory like the “high-wage economy” argument. Taken together, the work of Stephenson (whom I am told is officially forthcoming), Humphries and Weisdorf show the importance of doing data work as the new data may overturn some key pieces of research (maybe, I am not sure, there is some stuff worth testing).
Notes On Liberty 
From the standpoint of a firm, why would it matter if the contractor was skimming 20% off the top? It’s still a labor cost, and it still incentivizes labor-saving technology, no?
Unless you are comparing one place with actual wages to a place with the rates embedded…
I have always been very skeptical when it comes to Allen’s high wage argument. See my Escaping poverty, 207-210, Peer Vries
News of the death of the Allen hypothesis have been greatly exaggerated…
First, it rests on a solid causality. The UK economy grew much faster than rest of Europe between, say 1560 and 1760. Rate of urban growth is also stronger than elsewhere on the continent. Stronger exports than almost all the other countries seems to explain at least part of this strong showing. It would actually be difficult to admit (pace Arthur Lewis) that all that could occur without at least some impact on wages.
Second, there are numerous evidence supporting Allen’s hypothesis beyond the reconstituted wage data:
– reliance on female and child labor is consistent with high male wages (cf, among many other to the interesting comparison made by Rosa Luxembourg between Polish and Russian industries in the late 19th century).
– sizeable migration of workers from Europe to England, also consistent with higher wages in the UK.
– English exports tended to concentrate on labour-saving products and imports from the rest of Europe tended to concentrate on labour-intensive ones. Several references to loss of knowhow from British artisans.
– several examples of English industrialists relocating their production on the continent.
– tariff policy destined to protect British producers of labour-intensive ware (silk, indiennes)
– numerous anecdotes of contemporaries describing English wages as higher.
– higher consumption in the UK of numerous products (eg: sugar) consistent with overall higher living standards.
– long-term policy choice favouring capital-intensive navy against labour-intensive army.
Third, while real wages enjoyed by British workers may be subject to revision that could affect inter-temporal comparision, maybe explaining away some weird changes (no doubt much work needs to be done there), only an international comparison could possibly affect Allen’s hypothesis. To give but one example, the process of hiring servants in France was extremely long and difficult (as shown by Philip T. Hoffman) and could lead to very high costs. In Paris, many professions had to employ “bureau de placement” even as late as the 20th century.
Reblogged this on John Barleycorn and commented:
A good read.
What percentage of labor costs were “wages” and what percentage were to the self-employed small business?
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