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

Journal article
Authors Svante Prado
Christer Lundh
Kristoffer Collin
Kerstin Enflo
Published in Scandinavian Economic History Review
ISSN 0358-5522
Publication year 2020
Published at Department of Economy and Society, Economic History
Language en
Links https://doi.org/10.1080/03585522.20...
Keywords Law of one price; regional wage convergence; farm workers; labour market institutions; Sweden
Subject categories Economic History

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.

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