Wage Gaps and Development: Lessons from U.S. History

May 1, 2007

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Alex Mourmouras, and Peter Rangazas. Wage Gaps and Development: Lessons from U.S. History, (USA: International Monetary Fund, 2007) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

During the course of development, wages and labor productivity are much higher in the nonfarm sectors of the economy than in agriculture. In this paper, we examine the sources and consequences of wage and productivity gaps in the U.S. from 1800 to 2000. We build a quantitative general equilibrium model that closely matches the two-century long paths of farm and non-farm labor productivity growth, schooling, and fertility in the U.S. The family farm emerges as an important institution that contributes to differences in wages and labor productivity. Income from farm ownership compensates farm workers for the relatively low labor productivity and wages earned in agriculture. Farm ownership, along with the higher cost of raising children off the farm, generated a two-fold gap in labor productivity across the farm and nonfarm sectors in the 19th century US. Consequently, the reallocation of labor from farming to industry raised the average annual growth rate of output per worker by about half a percentage point over the 19th century. The paper also draws some lessons from the quantitative analysis of U.S. economic history for currently developing countries.

Subject: Education, Labor, Productivity, Wage gap, Wages

Keywords: Mover accent, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/105
Stock No:

WPIEA2007105
ISBN:

9781451866698
ISSN:

1018-5941

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