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

Abstract

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.

The Law of One Price and Its Violation: An Update on Empirical Advances

“…While the above studies focus on the price convergence of goods and services within the borders, Tomal and Gumieniak (2020) and Prado et. al.…”

“…While the last year's inputs prices, per capita GDP and agricultural commodity prices accelerate price convergence, urbanization and interest rates decelerate the same. Prado et. al.…”

“…Alongside the mobility of labour, grain prices, immigration and unionization of industrial and agricultural labourers were drivers of wage convergence. While Tomal and Gumieniak (2020) and Prado et. al.…”

Social Mobility in Sweden Before the Welfare State

“…Previous research indicates that internal migration was quick to respond to the opportunities that opened with industrialization and economic growth. Ericsson & Molinder (2020) argue that geographical mobility is a key factor in explaining why Swedish real wages grew so fast in the second half of the nineteenth century, while Enflo et al (2014) show that internal migration was very responsive to wage differentials and shifted supply away from low wage regions, acting as a catalyst for wage growth (see also Collin et al, 2019;Prado et al, 2021). Similarly, Söderberg (1985) compares the stability of the regional population distribution in Sweden, France, Britain, and Prussia in the late nineteenth century and finds most change in the Swedish case.…”