Friday, February 5, 2016

Was the Gilded Age a Gilded Age?

 James Livingston argues in the Chronicle of Higher Education that we are not living in a second Gilded Age, primarily because the original Gilded Age wasn’t actually what people think it was.
"First of all, what was the Gilded Age? The term comes from Mark Twain and is generally used to describe the period from about 1870 to about 1900. It is widely regarded as a time when big business came to dominate the American economy and Robber Barons ruled.
 Livingston argues that, in fact, labor ruled and capitalists were the losers:

“In the so-called Gilded Age, real wages increased dramatically but labor productivity didn’t, so capitalists suffered. Extraordinary economic growth happened, no doubt about that then or now, but workers were, as the capitalists complained, the principal beneficiaries. For example, real wages in the nonfarm sector increased roughly 30 percent between 1884 and 1896 (unemployment wasn’t rising), but productivity flatlined. The opposite is true of our time.
Why, then, did workers win the class struggle of the late 19th century? Not because they were represented by trade unions. Only 10 percent of the labor force belonged to such a thing. And not because they weren’t militant — between 1881 and 1905, when the Bureau of Labor Statistics kept meticulous records, the number of strikes, lockouts, establishments affected, and participants increased at a rate that would panic contemporary observers. With almost no union representation, workers won — they were the victors in the majority of strikes and lockouts measured in the late 19th century by the BLS.”
I agree with some of Livingston’s interpretation. The late nineteenth century was not just a period in which capitalists oppressed labor to make larger and larger profits. On the other hand there are several specific elements that I am not so sure about.

Because there are no citations I am not sure where the evidence comes from. I am also not clear why 1884 to 1896 would be a particularly useful period. The statement about unemployment is confusing because estimates of unemployment for the nineteenth century find the unemployment rate in 1896 to be considerably higher than 1884. J.R. Vernon (1994 Journal of Macroeconomics) estimated unemployment at 4.01% in 1884 and 8.18% in 1896. Romer and others estimated it was over 10 % in the mid 1890s. I also don’t know of any evidence that productivity growth flatlined during the Gilded Age. Estimates I am familiar with show quite the opposite. The following table is from Abromowitz and David

What did happen to real wages and labors share during the Gilded Age? The following table is from Measuring Worth. It shows the annualized growth rates for several series from 1870 to 1900.


1870 to 1900
Consumer Price Index
Unskilled Wage
Production Worker Compensation
Nominal GDP per capita

The wage series are in nominal terms, but you can see that in the case of production workers nominal wages increased and in the case of unskilled workers it fell less rapidly than prices. The workers represented in these two series would have experienced increases in real wages, but their nominal wages were not rising more rapidly than nominal GDP per capita. It is also not clear that capitalists were in a losing battle. For instance, the following graph, also using data from Measuring Worth, shows the nominal value of a $1 investment in the S&P Index in 1871, assuming that dividends are reinvested each year.  

Overall, I think Livingston’s interpretation suggests too much of a zero sum game between labor and capital. If labor gained, capital must have been losing. The available evidence is consistent with both labor and capital doing well during the late nineteenth century.

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