Labour and the ‘law of one price’: regional wage convergence of farm workers in Sweden, 1757–1980

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Labour and the ‘law of one price’ : regional wage convergence of farm workers in Sweden, 1757–1980. / Prado, Svante; Lundh, Christer; Collin, Kristoffer; Enflo, Kerstin.

In: Scandinavian Economic History Review, Vol. 69, No. 1, 2021, p. 41-62.

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TY - JOUR

T1 - Labour and the ‘law of one price’

T2 - regional wage convergence of farm workers in Sweden, 1757–1980

AU - Prado, Svante

AU - Lundh, Christer

AU - Collin, Kristoffer

AU - Enflo, Kerstin

PY - 2021

Y1 - 2021

N2 - Economic theory predicts that differences in wages for workers with similar skills will decline as labour mobility increase. This prediction is reminiscent of the ‘law of one price’, the notion that markets, if unfettered, eliminates price differentials of similar commodities across space. But can we really apply the economic logic of the commodity market to the labour market, governed as it is by institutions and politics as well as market forces? In this paper, we have examined the spread in farm workers’ wages across Swedish counties in 1757–1980. Besides nominal wages, the paper also offers cost of living indices by county. The paper enquires into sigma convergence and beta convergence. Long-run convergence, by both measures, was massive; the coefficient of variation, for instance, declined from about 28 per cent in the mid-eighteenth century to 4 per cent in 1980. Most of the compression, though, occurred in brief episodes rather than continuously. Markets, through labour mobility and trade, and institutions, through collective actions and labour laws, took turns in pushing towards regional convergence. The ‘law of one price’, we conclude, was not singlehandedly responsible for the elimination of regional wage differentials.

AB - Economic theory predicts that differences in wages for workers with similar skills will decline as labour mobility increase. This prediction is reminiscent of the ‘law of one price’, the notion that markets, if unfettered, eliminates price differentials of similar commodities across space. But can we really apply the economic logic of the commodity market to the labour market, governed as it is by institutions and politics as well as market forces? In this paper, we have examined the spread in farm workers’ wages across Swedish counties in 1757–1980. Besides nominal wages, the paper also offers cost of living indices by county. The paper enquires into sigma convergence and beta convergence. Long-run convergence, by both measures, was massive; the coefficient of variation, for instance, declined from about 28 per cent in the mid-eighteenth century to 4 per cent in 1980. Most of the compression, though, occurred in brief episodes rather than continuously. Markets, through labour mobility and trade, and institutions, through collective actions and labour laws, took turns in pushing towards regional convergence. The ‘law of one price’, we conclude, was not singlehandedly responsible for the elimination of regional wage differentials.

KW - Law of one price

KW - regional wage convergence,

KW - farm workers

KW - labour market institutions

KW - Sweden

U2 - 10.1080/03585522.2020.1740776

DO - 10.1080/03585522.2020.1740776

M3 - Article

VL - 69

SP - 41

EP - 62

JO - Scandinavian Economic History Review

JF - Scandinavian Economic History Review

SN - 1750-2837

IS - 1

ER -