Wage Gaps and Development: Lessons from US History

47 Pages Posted: 8 May 2007

See all articles by Alexandros Mourmouras

Alexandros Mourmouras

International Monetary Fund (IMF) - Policy Development and Review Department

Peter Rangazas

Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics

Date Written: May 2007

Abstract

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.

Suggested Citation

Mourmouras, Alexandros and Rangazas, Peter Coia, Wage Gaps and Development: Lessons from US History (May 2007). IMF Working Paper No. 07/105, Available at SSRN: https://ssrn.com/abstract=984610

Alexandros Mourmouras

International Monetary Fund (IMF) - Policy Development and Review Department ( email )

700 19th St. NW
Room 5-311
Washington, DC 20431
United States
202-623-5402 (Phone)
202-589-5402 (Fax)

Peter Coia Rangazas (Contact Author)

Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics ( email )

425 University Boulevard
Indianapolis, IN 46202-5140
Germany
(317) 529-2837 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
83
Abstract Views
755
rank
406,958
PlumX Metrics