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Land, Labor and the Wage-Rental Ratio: Factor Price Convergence in the Late Nineteenth Century

62 Pages Posted: 8 Jun 2004 Last revised: 19 Aug 2010

Kevin H. O'Rourke

University of Dublin, Trinity College; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Alan M. Taylor

University of California, Davis - Department of Economics; University of Virginia - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jeffrey G. Williamson

Harvard University - Department of Economics, Laird Bell Professor of Economics, Emeritus; Honorary Fellow, University of Wisconsin - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: November 1996

Abstract

This paper augments the new historical literature on factor price convergence. The focus is on the late nineteenth century, when economic convergence among the current OECD countries was dramatic; and the focus is on the convergence between Old World and New, by far the biggest participants in the global convergence during the period; and the focus is on land and labor, the two most important factors of production in the nineteenth century. Wage-rental ratios boomed in the Old World and collapsed in the New, moving the resource-rich and labor scarce New World closer to the resource-scarce and labor-abundant Old World. The paper uses both computable general equilibrium models and econometrics to identify the forces causing the convergence. These include: commodity price convergence and the Heckscher-Ohlin Theorem of factor price equalization; migration, capital-deepening and frontier disappearance, factors stressed by Malthus, Ricardo, Wicksell and Viner; and factor-saving biases associated with induced-innovational theory, an endogenous response to relative factor scarcities.

Suggested Citation

O'Rourke, Kevin H. and Taylor, Alan M. and Williamson, Jeffrey G., Land, Labor and the Wage-Rental Ratio: Factor Price Convergence in the Late Nineteenth Century (November 1996). NBER Working Paper No. h0046. Available at SSRN: https://ssrn.com/abstract=318299

Kevin H. O'Rourke

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

University of Dublin, Trinity College ( email )

Department of Economics
Dublin 2
Ireland
+353 1 608 3594 (Phone)
+353 1 677 2503 (Fax)

HOME PAGE: http://econserv2.bess.tcd.ie/korourke/homepage.htm

Alan M. Taylor

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-1572 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/amtaylor/

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
(434)-924-3177 (Phone)
(434)-982-2904 (Fax)

HOME PAGE: http://people.virginia.edu/~amt7u

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://nber.org

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

HOME PAGE: http://cepr.org

Jeffrey G. Williamson (Contact Author)

Harvard University - Department of Economics, Laird Bell Professor of Economics, Emeritus ( email )

Littauer Center
Room 216
Cambridge, MA 02138
United States
617-495-2438 (Phone)
617-496-7352 (Fax)

Honorary Fellow, University of Wisconsin - Department of Economics

716 Langdon Street
Madison, WI 53706-1481
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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