An overabundance of labor

Unless other forces intervene, an overabundance of labour will tend to drive down its price, which naturally means that workers and their families have less to live on. One of the most important forces affecting the labour supply in the US has been immigration, and it turns out that immigration, as measured by the proportion of the population who were born abroad, has changed in a cyclical manner just like inequality. In fact, the periods of high immigration coincided with the periods of stagnating wages. The Great Compression, meanwhile, unfolded under a low-immigration regime. This tallies with work by the Harvard economist George Borjas, who argues that immigration plays an important role in depressing wages, especially for those unskilled workers who compete most directly with new arrivals.

Immigration is only one part of a complex story. Another reason why the labour supply in the US went up in the 19th century is, not to put too fine a point on it, sex. The native-born population was growing at what were, at the time, unprecedented rates: a 2.9 per cent growth per year in the 1800s, only gradually declining after that. By 1850 there was no available farmland in Eastern Seaboard states. Many from that ‘population surplus’ moved west, but others ended up in eastern cities where, of course, they competed for jobs with new immigrants.

This connection between the oversupply of labour and plummeting living standards for the poor is one of the more robust generalisations in history. Consider the case of medieval England. The population of England doubled between 1150 and 1300. There was little possibility of overseas emigration, so the ‘surplus’ peasants flocked to the cities, causing the population of London to balloon from 20,000 to 80,000. Too many hungry mouths and too many idle hands resulted in a fourfold increase in food prices and a halving of real wages.

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But don’t the economists disagree?

Cultural distance

For the most part, such transactions do not actually happen at all. This is in a sense the “missing trade” in the world. It is most visible at the level of countries. As Pankaj Ghemawat shows in World 3.0, the cultural distance between countries is a very strong predictor of bilateral trade levels, and the strength of border restrictions between two countries can be measured in terms of missing trade: the trade that would exist if the border didn’t exist. If I recall correctly, Ghemawat estimates that the missing trade across the US-Canada border (the strongest economic bilateral relationship in the world, grounded in very deep cultural affinity) is missing several trillion dollars.

When they do happen, there is usually a trader-mediated market in the middle, one of whose primary functions is to create a certain amount of anonymity, by obscuring the origins and destinations of goods and services in order to preserve the fictions on either side.

This allows, for instance, ideological foes to trade things like agricultural produce, oil and minerals.

It is no accident that things traded via intermediary trader markets are typically commodities. It is much easier to obscure the origin and destination of things like oil than things like movies. To the extent that a product or service is not  a commodity, it carries with it the values of the producer culture.

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I’m not convinced that the US/Canada cultural affinity is that deep. The two seem pretty different; and after the revolution, when the monarchists were chased out of the States, most of them went to Canada.

Also, is the operative thing here really cultural distance in general, or is it cultural distance between elites? The latter is more relevant in things like war: consider that Washington entered America into two wars for the purpose of siding with Britain to crush Germany. (The main reason the Anglosphere didn’t knock Germany back to the Stone Age after WW2 was that USG worried that, if they did that, it would go Communist.) The elites were Anglophiles, but many of the common people were Germans.