Wage Convergence in the Age of Mass Migration
Although there are substantial movements of people between countries in the modern world, the truly heroic age of labor mobility— when immigration was a major source of population growth in some countries, while emigration caused population in other countries to decline—was in the late 19th and early 20th centuries. In a global economy newly integrated by railroads, steamships, and telegraph cables, and not yet subject to many legal restrictions on migration, tens of millions of people moved long distances in search of a better life. Chinese people moved to Southeast Asia and California, while Indian people moved to Africa and the Caribbean; in addition, a substantial number of Japanese people moved to Brazil. However, the greatest migration involved people from the periphery of Europe—from Scandinavia, Ireland, Italy, and Eastern Europe—who moved to places where land was abundant and wages were high: the United States, Canada, Argentina, and Australia.
Did this process cause the kind of real wage convergence that our model predicts? Indeed, it did. Table 4-1 shows real wages in 1870, and the change in these wages up to the eve of World War I, for four major “destination” countries and for four important “origin” countries. As the table shows, at the beginning of the period, real wages were much higher in the destination than in the origin countries. Over the next four decades real wages rose in all countries, but (except for a surprisingly large increase in Canada) they increased much more rapidly in the origin than in the destination countries, suggesting that migration actually did move the world toward (although not by any means all the way to) wage equalization.
As documented in the case study on the U.S. economy, legal restrictions put an end to the age of mass migration after World War I. For that and other reasons (notably a decline in world trade and the direct effects of two world wars), convergence in real wages came to a halt and even reversed itself for several decades, only to resume in the postwar years.