The Macroeconomic Aggregates for England, 1209-2008 Gregory Clark, University of California, Davis ([email protected]) Revised Version - October 2009 UC Davis, Economics WP 09-19 Estimates are developed of the major macroeconomic aggregates – wages, land rents, interest rates, prices, factor shares, sectoral shares in output and employment, and real wages – for England by decade between 1209 and 2008. The efficiency of the economy 1209-2008 is also estimated. One finding is that the growth of real wages in the Industrial Revolution era and beyond was faster than the growth of output per person. Indeed until recently the greatest recipient of modern growth in England has been unskilled workers. The data also creates a number of puzzles, the principle one being the very high levels of output and efficiency estimated for England in the medieval era. This data is thus inconsistent with the general notion that there was a period of Smithian growth between 1300 and 1800 which preceded the Industrial Revolution, as expressed in such recent works as De Vries (2008). Contents Introduction 1. Estimating Economic Growth from Payments to Factors 2. Estimating Economic Efficiency Wage Income and the Labor Market, 1209-1869 3. Farm Nominal Wages 4. Non-Farm Nominal Wages 5. Share of Labor in Agriculture 6. Average day wage 7. The Wage Premium for Skills 8. Population 9. Days worked per year 10. Aggregate Labor Income Indirect Taxes, 1209-1869 11. Indirect taxes on property occupiers. 12. Commodity Taxes Property Income, 1209-1869 13. Farmland Rental Income 14. Returns on capital 15. Farm capital income 16. Housing rental income 17. Other Property Income National Income, 1209-1869 18. Nominal National Income and its components 19. Expenditure Prices 20. Export Prices 21. Import Prices 22. Real National Income 23. Cost of Living and Real Wages Economic Efficiency, 1209-2008 24. Economic Efficiency 25. Output, Factor Shares and Efficiency, 1870-2008 1. Estimating Economic Growth from Payments to Factors English nominal net domestic income, NDI, is estimated as NDI = wages + farmland and mineral rents + tithe payments + net mine, canal, road, rail and ship rents + net house rents + other net capital incomes + indirect taxes Real NDI is NDI deflated by the average price of domestic expenditures, PDE. Real net domestic output is NDI deflated by the price of net domestic production, PNDP. These two output measures can differ if export and import prices move differently. Dividing by population we get all of these in per capita terms. 2. Measuring Efficiency, 1209-1869 The basic measure of the efficiency (total factor productivity) of the economy is an index (r + λ)a p aw bs c A = t Kt t t t −τ (1) pt (1 t ) where, r = return on risk free capital, λ is a risk premium, pK = index of price of capital, w = index of wages , s = index of farmland rents, p = price index, τ = share of national income collected in indirect taxes. The price index for outputs, wages, rents are all measured as geometric indexes, with weights changing from year to year. a, b, c are the shares in factor payments of capital, labor and land respectively. These shares are changed every 10 years to reflect changes in the earnings of the different factors over time. Thus though the index has the Cobb-Douglas form the changing weights imply that there is no underlying assumption of a Cobb-Douglas technology. In fact the index is agnostic on the form of the production function, except for an assumption that the capital share is unchanging. Wage Income and the Labor Market Wages are the most important share of GNI throughout the years 1209-1869, and the most important cost in the index given by (1), with a weight of 50-75 percent. To estimate aggregate wages and labor costs before 1870 the approach here is to first estimate a separate national index of farm day wages, and of non-farm day wages. Then these are aggregated into a national wage using estimates of the structure of occupations, and the relative average wage in the primary sector compared to the rest of the economy. It is shown that for the years 1820-1869 the average national wage estimated on this basis correlates well with a more detailed wage index constructed by Feinstein (1998a, 1998b). 3. Farm Wage Index The details of the construction of the farm day wage index are given in Clark (2007a). The wage estimated is the average day wage of farm workers outside harvest. Farm workers typically earned extra income at hay time and the grain harvest. The average premium at harvest (for 6 weeks) was 61%, and at hay (for 2 weeks) was 32%. Assuming a 300 day (50 week) year this implies that the average day wage was 8.6% greater than the level reported in table 1. The reported average male farm day wage reflects this adjustment. The prices and wages reported for the earlier years are frequently dated only by an account year which differs from a calendar year. Thus the most common account year in the medieval period ran from Michaelmas (29 September) to Michaelmas. This was because the harvest was complete only shortly before this quarter feast, and was the natural time for an account to be drawn of the success of the previous harvest season. Later parish accounts often ran from Lady Day (25th March) to Lady Day, or from Easter to Easter, where Easter had no fixed date. In all cases where the exact date of a recorded wage or price is unknown it is attributed to the calendar year in which the majority of the account year falls. TABLE 1 4. Non-Farm Wage Index These are estimated as an average of the day wages of skilled and unskilled building workers, as reported in Clark (2005). Again table 1 shows the data by 10 year averages. It is assumed that the ratio of numbers of skilled to unskilled stays the same throughout the years 1209-1869. 5. Share of Labor Force in the Primary Sector For the years 1750-1869 the numbers employed here for employment in the primary sector are those of Shaw-Taylor and Wrigley (2008). Table 2 shows their benchmark estimates for the years 1755, 1817, 1851 and 1871. I interpolated between these benchmarks by assuming the same change in employment share in each year between the benchmarks. The assumed share in primary production in the years before 1680 of 0.60 is much less than is assumed in a recent paper by Broadberry, Campbell et. al. (2009), whose assumed shares are shown also in table 2. The reasons for assuming this smaller primary share are two-fold. First for the years 1510-1800 we can get some ancillary information on occupational structure from the stated occupations of a large number of testators. Figure 1 shows the share of these testators who reported primary sector occupations by decade from the 1520s to the 1860s, calculated as 1 ϕ where snon-London is the share of testators outside London who list primary sector occupations, and is the share of the population in London. The share for 1860-9 is 0.21, close to the numbers reported by Shaw-Taylor and Wrigley. The share for the 1810s is 0.44, compared to 0.42 for Shaw-Taylor and Wrigley. The earlier share of primary sector occupations is never as high as the 70% Broadberry et al. assume for 1600 and earlier. Secondly the structure of the economy will be closely connected to real incomes. We will see below that estimated real incomes in the years 1400-1550 exceed those of 1700-1750, so a much largely primary share for occupations seems unlikely. TABLE 2 Figure 1: Share of will makers with primary sector occupations, 1580s-1860s 1.0 0.8 0.6 0.4 0.2 Share in Primary Sector 0.0 1530 1570 1610 1650 1690 1730 1770 1810 1850 Notes: The variation of the measure in the decades 1640-1729 is due to the small numbers of observations in these years. 6. Average Implied Day Wage To estimate the average day wage in the economy as a whole we need to know what average earnings in the primary sector were compared to the economy as a whole. Leone Levi estimated the average adult male wage in England in 1866 as 45 d. per day (Levi, 1867, 9). The average wage for male farm laborers was, however, only 25.7 d. per day (including an allowance for the harvest premium). However, for each 6 farm workers there was a bailiff or farmer, many of whom worked on their own accounts, and others who supervised hired labor, who would have higher implied labor incomes. For want of better information let us assume that premium was 100%. This implies an average effective implied male wage in the primary sector of 30.0 d.1 The share of employment in the primary sector, mainly agriculture, in the 1860s was 0.279. This in turn implies an average male day wage in the rest of the economy of 50.8 d. in 1866, a 69% premium on average labor income in the primary sector. The average wage in the economy is thus estimated as 1 Coal mining was the other major activity in the primary sector, and was about 10% of employment in this sector by 1851. In the years 1830-1869 the wage premium for coal miners compared to farm day laborers averaged 63%. However, making explicit allowance for coal miners and their higher wages in the years 1830-1869 had little effect on the estimated wage trend in the economy 1830- 1869.