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Transatlantic Migration and the Gold Standard:
An Empirical Exploration.
David Khoudour-Castéras
Institut d’Etudes Politiques de Paris
February 2003
Abstract
In line with the optimum currency areas theory, this paper demonstrates that international migration before World War I was a key factor in the smooth functioning of the classical Gold Standard. Indeed, sticky nominal wages, difficulties for “peripheral” countries to attract foreign capital, and the absence of public counter-cyclical intervention made labor mobility an essential adjustment mechanism for countries that opted for pegging their currency to gold. Actually, the econometric tests show that emigration from European Gold Standard members responded to variations in both home and American economic activity, while the relationship didn’t exist for non-gold countries that could rely on exchange rate adjustments.
I am indebted to John Komlos, Leandro Prados de la Escosura, Blanca Sánchez-Alonso and
Max-Stephan Schulze for helping me to complete my data series. I thank most specially Marc Flandreau for his very helpful comments and suggestions. Errors remain mine.
1
Transatlantic Migration and Gold Standard:
An Empirical Exploration.
After all that has been said of the levity and inconstancy of human nature, it appears evidently from experience that a man is of all sorts of luggage the most difficult to be transported.
Adam Smith (1776).
Introduction
The “classical” Gold Standard, even if it was not exactly a “monetary union”, largely
fits in the Optimum Currency Areas (OCAs) model first developed by Mundell. Indeed,
countries at that time were subject to specific shocks that exchange rate stability did not allow
to cope with. Actually, though a certain level of monetary coordination contributed to tighten
up the synchronization of cycles (Morgenstern, Huffman and Lothian, Flandreau and Morel),
the “international division of labor” brought about a strong specialization, which was
accompanied by asymmetrical disturbances (Bayoumi and Eichengreen).
Moreover, even though some studies tend to show that wage flexibility was higher
before World War I than today, at least in the United States (Hanes and James), the increase
in union demands and the implementation of several mechanisms of protection of the workers
resulted in putting into place a “ratchet effect” in the wage setting: “Downward wage
adjustment rarely reached any sizable amplitude, even in the nineteenth century, among the
countries which maintained exchange-rate stability, and it may be doubted whether they
would have proved much more acceptable at that time, economically, politically, and socially,
than they are today” (Triffin). And, if it seems true that depression periods could cause wage
2
cuts, they were marginal and in any case comparable to upward adjustments that followed a
strong economic growth (Phelps and Browne). Indeed, a business boom was accompanied by
a tough competition between firms in order to attract new workers: “When trade is good, the
force of competition among the employers themselves, each desiring to extend his business,
and to get for himself as much as possible of this high return, makes then consent to pay
higher wages to their employees in order to obtain their services” (Marshall). This situation
implied increases in wages, whereas downward pressures had to face up to the resistance of
workers and union representatives. In other respects, Gould notices that, beyond the will to
avoid industrial disputes, American companies already appreciated advantages to maintain in
their bosom experienced workers thanks to a certain stability of wages, including the cases of
economic turnaround.
This nominal wages rigidity represented an obstacle to the automatic adjustment
mechanism that was supposed to govern the Gold Standard. Consequently, alternative forms
of adjustment were necessary. Nevertheless, stabilization policies were virtually non-existent:
the Gold Standard choice meant that public authorities could make use of the monetary
instrument with the only purpose to stabilize the exchange rate; on the other hand, the fiscal
policy was confined to maintain the public budget equilibrium. Faced with this absence of
counter-cyclical intervention, market mechanisms, and above all factors mobility, were the
ones that made the adjustment possible.
As a matter of fact, the international integration of capital markets constitutes a central
element of the OCAs theory (Ingram, Johnson). Capital mobility makes the financing of
current account deficit cheaper, and thereby contributes to the adjustment with fixed exchange
rates. In that perspective, the Gold Standard period was distinguished by a strong capital
mobility, as shown by Bayoumi, even if the “core” countries benefited from the best financing
conditions. The other countries, those of the “periphery”, whose financial markets were not
3
considered by investors as mature enough (Bordo and Flandreau), had to turn to labor
mobility.
Actually, Mundell showed that the nominal wage rigidity could be compensated by
workers flows from the regions affected by a negative shock to expanding areas. In that case,
the return to full employment equilibrium takes place thanks to cutbacks in the labor supply of
the country in recession. The arrival of new workers in the region subject to the positive
shock, as for it, plays a great part in reducing inflationary pressures since the productive
capacity is no longer restrained by a labor shortage. In other respects, migration result in a
decrease in imported goods demand inside the emigration country, which furthers the return
to external equilibrium.
Therefore, in this model, labor mobility represents an indispensable criterion for the
realization of an optimal adjustment. Indeed, it allows the long-term viability of a monetary
system based on exchange rate fixity. And precisely, the practically free movement of
workers on a worldwide scale characterized the Gold Standard period. Consequently, the
adjustment by labor mobility was not limited, as it can be nowadays, by restrictions to
migration. Hence, it is possible to think that the key to Gold Standard success did not lie in
the automatic price-specie flow mechanism depicted by Hume, but rather in the substantial
international migration that occurred during the second part of the nineteenth century and the
beginning of the twentieth.
The remainder of this paper is organized as follows. Section I presents the main
features of transatlantic migration before 1914. It reviews the literature related to structural
determinants of international labor movements, but insists on the cyclical part of migration.
Actually, variations in migration were strongly correlated with business cycles. Then, section
II reconsiders the role of migration as a mechanism of adjustment with fixed exchange rates.
In particular, it wonders whether labor mobility acts as a counter-cyclical or pro-cyclical
4
instrument. Finally, section III studies the impact of variations in activity indicators on the
migration rate fluctuations. The econometric tests show a significant link between migration
in Gold Standard countries and business cycles.
I – Migratory Fluctuations and Business Cycles
The structural determinants of transatlantic migration
Between 1870 and 1914, about 40 millions of European denizens left their country.
Low-educated young males made up the majority of migrants. Most of them (about 60%)
went to America. Technical progress in terms of transport and communication strongly
encouraged this process, since they resulted both in reducing the travel costs, particularly the
transatlantic ones, and in improving information related to receiving countries.
Actually, the New World’s agricultural and industrial development accounted for a
great part of the mass migration before World War I. And the considerable income differential
between the United States and the European countries represented the determining factor of
labor movements. The lower were the domestic real wages, the higher was the propensity to
emigrate (Hatton et Williamson). In that perspective, as shown by Bairoch, the deterioration
of the European life conditions, brought about by the first stage of the Industrial Revolution,
promoted departures.
Nevertheless, “The American fever is not a last-minute and desperate decision, but
generally a deliberate response to trying life conditions” (Green). Indeed, it is necessary to
take into account the opportunity cost of moving: price, duration and unpleasantness of the
journey, non-received wages during the journey, settlement expenses, probability to find a
5
work in the host country… Thus, there was an income threshold below which departures were
very unlikely, unless a social unit mobilizes to send one of its members abroad. This is
precisely one of the reasons why the emigration level in Spain, one of the poorest European
countries at the end of the nineteenth century, was lower than in the other European countries
(Sánchez Alonso). In that way, the industrialization stage, and consequently the urbanization
stage, had a significant influence on migratory flows. Indeed, urban workers seemed more
sensitive to wage gaps than farm workers. Used to labor conditions in towns, industry workers
integrated more easily the foreign labor markets, which probably explains their higher
mobility. As Green says: “Emigration is often the second stage of a long process that leads in
a first time from the countryside to the next town, before to lead on the other side of the
Atlantic”.
The European demographic growth, which brought about population excess in Europe,
widely encouraged, with a twenty years lag, the increase in migratory flows, above all among
the young people who looked abroad for opportunities they didn’t have at home (Easterlin,
Hatton and Williamson). On the contrary, the fall in the fertility in Northern Europe partly
explains the emigration slowdown in the region from the end of the nineteenth century
onwards: “The Malthusian Devil crossed the European continent from Ireland to Germany,
then to Southern and Eastern Europe where his sway was to be greatest of all” (Thomas).
In other respects, close relations could contribute to the “social ascension myth”
(Brun). Indeed, knowing successful persons abroad, people who spoke the same language,
someone able to receive them and make easier their integration… must probably have helped
to encourage potential emigrants. Moreover, lots of new migrants traveled thanks to the
financial assistance of their predecessors: before War World I, between 30 and 40%, on
average, of Southern and Eastern Europeans traveled with pre-paid tickets (32.1% of the US
immigrants during the period 1908-1914, according to Jerome). This “chain migration”
6
process partially originated the setting up of regional communities in asylum countries.
Actually, cultural, linguistic or ethnic preferences could, in some cases, take precedence on
pay or labor conditions. Nevertheless, as Jerome says: “It will be granted that the hope of
economic betterment is not the sole motive for emigration. Religious or political persecution,
racial discrimination, or the mere love of adventure may be the impelling force. But, in the
main, the emigrant is a seller of labor, seeking the best price for his services, and hence not
apt to be attracted by a stagnant market”.
Migratory fluctuations
The examination of international labor flows before World War I (figure 1) permits to
observe a cyclical behavior and, very logically, a strong parallel between the European
emigration (Austria, Belgium, Denmark, France, Germany, Hungry, Ireland, Italy, the
Netherlands, Norway, Portugal, Russia, Spain, Sweden, and the United Kingdom) and the
“New World” immigration (Argentina, Australia, Brazil, Canada, New-Zealand, and the
United States).
Beyond the frequency of cycle reversals, the extent of variations is striking. For
instance, after a drop of 61% between 1873 (2.67‰) and 1877 (1.05‰), the European
emigration rate increased 268% between 1877 and 1882 (2.95‰). In the same way, a growth
of 64% of the New World immigration rate between 1886 (6.79‰) and 1888 (11.11‰)
followed a contraction of 50% between 1882 (13.62‰) and 1886.
7
Figure 1 International Migration (1870-1913)
Source: author database.
Of course, these migratory fluctuations are also present at the national scale as
illustrated by the Scandinavian case (figure 2). The emigration rates of Sweden and Norway,
for instance, increased in 138% and 166%, respectively, in 1880, while they fell in 67% and
70% in 1894. On that score, the symmetry of the Danish, Swedish and Norwegian migratory
cycles is to be noted, the correlation coefficients between the emigration rate variations of
these countries being 0.9 for Sweden and Norway, 0.6 for Sweden and Denmark, and 0.7 for
Denmark and Norway.
0
500
1000
1500
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2500
1870
1872
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Thou
sand
s of m
igra
nts
European emigration
New World immigration
8
Figure 2 Emigration rates in Scandinavian countries (1870-1913)
Source: author database.
Figure 3 Immigration rate in the United States (1870-1913)
Source: author database.
0
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(‰)
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1870 1873 1876 1879 1882 1885 1888 1891 1894 1897 1900 1903 1906 1909 1912
Emig
ratio
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te (‰
)
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9
In the same way, receiving countries were subject to important migratory fluctuations.
For example, the American immigration rate went up from 2.9‰ in 1878 to 14.9‰ en 1882,
but it came back down to 5.8‰ in 1886. Generally speaking, the longest periods of increase
(1898-1903) or drop (1873-1878) only lasted five years (figure 3).
It seems important to note that apparently there was no link between the level of the
migration rate and its volatility, as measured by coefficient of variation (standard
deviation/mean). Indeed, the correlation rate between the mean and the volatility of
emigration rate during the period 1890-1913 is equal to -0.293. Countries such as France or
Germany, for example, characterized by very low emigration rates (0.15‰ and 0.75‰, on
average, respectively), had a relatively high volatility level. On the contrary, Italy (14.10‰)
and the United Kingdom (6.82‰), whose emigration rates were above the European mean
(5.03‰), stand among the low-volatility countries (Figure 4).
Figure 4 Relationship between mean and volatility of emigration rate (1870-1913)
Source: author database.
0
2
4
6
8
10
12
14
16
Fra Ger Den Aus Bel Swe Neth Nor Por Spa UK Ita
Mean Volatilityx10
10
International migration as an adjustment mechanism
Despite the structural causes of mass migration, business cycles seemed to play an
important role in workers’ movements. Indeed, an expansion in the host country, combined
with a depression period in emigration countries, produced an increase in departures;
inversely, an economic slowdown in the United States could restrain arrivals, above all when
domestic conditions improved in the European nations (Jerome, Thomas, Gould). Thus, the
economic prosperity during the years 1877-1882 in the United States (average growth:
+7.6%) played a great part in drawing a considerable number of migrants on the American
soil (789,000 thousands in 1882 compared to 142,000 in 1877). In the same way, the year
1907, which holds the record in terms of US immigration (1.3 millions new arrivals),
followed a year of strong economic growth (+11.5%). On the contrary, the 1893-1894
depression (-4.8% and -2.9%, respectively) brought about a massive downturn in the
immigrants number: -55.3% between 1892 (580,000) and 1895 (259,000).
The magnitude of transatlantic migration also depended on the state of the national
economic situation. Actually, domestic business cycles played a significant role in labor
movements. For example, the 1877-1879 depression in Sweden was accompanied by a strong
increase in the emigration rate (9.2‰ in 1880 compared with 1.7‰ in 1877, that is to say a
75% average annual growth). The Italian emigration was also connected to variations of the
domestic activity: after a GDP fall of 6.7% in 1881, the number of migrants increased by
13.3% in 1881 and by 19% in 1882; on the other hand, the strong GDP growth in 1907
(+11.3%) brought about a significant drop of departures (-10.6% in 1907 and -30.9% in
1908).
In the same way, most of the empirical studies show that the labor market situation in
the receiving countries significantly influenced workers’ mobility (Kelley, Gallaway and
11
Vedder, Richardson, Hatton and Williamson). Figure 4, for instance, reveals the relationship
between the US unemployment and immigration rates. It clearly appears that an immigration
fall followed increases in the unemployment rate, whereas an improvement of the labor
market conditions meant more foreign arrivals. Thus, in an empirical study on the British
immigration between 1871 and 1913, Hatton estimates that an increase in 10% of the overseas
employment rate (for instance, a drop in the unemployment rate from 10% to 1%) would have
raised gross emigration by 4.0‰ to 5.8‰. A similar increase in the domestic employment
rate, as for it, would have lowered gross emigration by half this amount.
Figure 5 Immigration and unemployment in the United States (1890-1913)
Source: author database.
0
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1892
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ate
(%)
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Imm
igra
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rate
(‰)
Unemployment
Immigration
12
Despite this strong inverse relationship, there was a slight lag between the moment
when labor market changes took place and the decision to migrate. The reaction lag lay
usually between one and five months, but in some cases it reached one year (Jerome). The
uncertainty as for opportunities to find a job abroad contributed to the existence of this lag.
Indeed, even if the conditions were favorable to leave, some time was necessary before that
potential migrants came to the decision to take the plunge. This attitude allowed risk-adverse
agents to take precautions against a turnaround. By the way, some objections have been raised
related to the future migrants’ ability to precisely know the conditions of the labor market on
the other side of the Atlantic. Both distance and communication deficiencies shouldn’t have
allowed emigration candidates to have access to such information: “Can the news of rising
activity in America have crossed the Atlantic, have found its way into thousands of peasant
homes in Germany and Ireland and Scandinavia, have led to decisions that now is the time
for a move, to the collection of the means for the voyage, the long journey to the port of
embarkation, the sea voyage to America – all within half a year? It is surely most improbable
that any causal connection with so short a time lag can exist.” (Carter). Yet, as Gould points
it out, close relations’ mail represented a widespread and reliable information channel.
Friends, relatives, neighbors… directly witnessed conditions of hiring, wages in force and, of
course, redundancies.
In other respects, Fenoaltea shows that a current account deficit could entail a rise of
emigration, which contributed to compensate for employment deterioration on the one hand,
and to finance trade deficits thanks to migrants’ remittances on the other hand. And this
phenomenon apparently increased from 1887, when international investment, notably the
British one, began to dwindle, compelling Italy to transfer the burden of the adjustment on the
labor factor. This relationship between emigration and current account (figure 6) brings the
13
discussion back to the OCAs logic, where a current account deficit can be offset, among other
mechanisms, by the labor mobility.
Figure 6 Emigration and trade balance in Italy (1870-1913)
Source: author database.
Return movements too were bound to business cycles. A deterioration of employment
in the receiving country fostered migrants’ return towards their home region, above all since
the newcomers in the firm, i.e. recent migrants, were generally the first ones to go in case of a
demand reversal, according to the “last in, first out” principle (Gould). For instance, after the
1908 depression in the United States (the GDP dropped in 8.2%), returns to Hungary (53,800)
were above the departures (49,400). This situation, in a certain way, confirms that reaction
lags were not as long as it’s generally believed. In other respects, it happened that some
workers, usually the most skilled ones, crossed several times the Atlantic Ocean in the course
0
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30
-1400 -1200 -1000 -800 -600 -400 -200 0 200
Trade balance (millions liras)
Emig
ratio
n ra
te (‰
)
14
of their life, in accordance with economic fluctuations. This was the case, for example, of
miners or some workers in the building trade. For them, there were two continents, but only
one labor market.
All in all, it’s possible to speak of an “Atlantic economy”, i.e. an economic system
where international trade and factor movements were dictated by activity fluctuations on both
sides of the ocean (Brinley Thomas). In such a system, transatlantic migration corresponds to
inter-regional mobility. By way of illustration, Dorothy Thomas, in her study on Swedish
population movements, considers that the good economic health in the United States only
induced the Swedes to leave when the home industry was down: “In prosperous years,
Swedish industry was able to compete successfully with the lure of America; and the latent
agricultural push towards emigration became an active force only when a Swedish industrial
depression occurred simultaneously with expanding or prosperous business conditions in the
new world”.
II – Questions on the Counter-Cyclical Role of International Migration
The DD-AA model provides a helpful guideline for the understanding of the role of
international migration in the presence of fixed exchange rates. The DD schedule is the
relationship between output (Y) and the exchange rate (E) that must hold when the output
market is in equilibrium, while the AA schedule is the relationship between output and the
exchange rate that must hold when the home money market and the foreign exchange market
(the asset markets) are in equilibrium. The DD schedule shows a positive relationship
between output and exchange rate. Indeed, a rise in the exchange rate (a depreciation) brings
about an increase in the national competitiveness, therefore an improvement in the current
15
account. As for it, the AA schedule decreases, because a rise in the output generates an
increase in the money demand, therefore in the domestic interest rate. It follows that the
capital entrance originates an appreciation of the exchange rate.
Lets assume two regions, i and j, linked by a fixed exchange rate ( )E . Each region is
specialized in the production of one different good, which increases the probability that
asymmetrical shocks occur. Wages are downward sticky, and this nominal rigidity is
strengthened by the exchange rate stability. Labor and capital flow freely, and there is no
public intervention in terms of counter-cyclical stabilization. Notably, there are neither
economic recovery policies, nor unemployment benefits.
Figure 7 The impact of asymmetrical shocks in the DD-AA model
Region i Region j
E E
DDi’ DDj
DDi DDj’
E
AAi AAj’
AAi’ AAj
Yi’ Yi Y Yj Yj’ Y
After an increase in the demand of goods produced in the region j (positive demand
shock), and a drop in the demand of goods produced in i (negative demand shock), current
accounts of both regions will move into disequilibrium. Therefore, the DD schedules shift
leftward in the region i (which suffers a deficit), and rightward in the region j (which shows a
surplus). In order to maintain exchange rate stability, the central bank of i is bound to tighten
16
its monetary policy (rise in interest rate), while the central bank of j has to loosen it (fall in
interest rate). The AA schedules shift in the same direction than the DD schedules, which
permits to maintain the exchange rate stability. In other respects, interest differential fosters
capital mobility, which contributes to the current account financing in the region i. The
increase in interest rate in i, generates the investments’ slowdown, which produces a fall in
the production (from Yi to Yi’), while the looseness of the monetary policy of the region j
brings about an output growth (from Yj to Yj’). In brief, maintaining the exchange rates
induces an increase in the unemployment rate of the region i, and inflationary pressures in the
region j. Consequently, labor mobility represents a solution to this situation, as shown by the
analysis of labor markets in both regions.
Figure 8 The impact of migration on the labor markets
Region i Region j
w/p w/p
LSj
LSi’ LSj’
LSi
Wj
Wi
LDj’
LDi LDj
LDi’
Li’ Li L Lj Lj’ L
The negative demand shock in the region i brings about a fall in the labor demand
(which shifts from LDi to LDi’), while the positive shock demand in the region j implies a
growing labor demand (which moves from LDj to LDj’). Labor mobility, enhanced by the
17
wage gap between i and j (Wj>Wi), contributes to restore the equilibrium on the labor market:
emigration of part of the active population of the region i offsets wage rigidity; inflationary
pressures in the region j are dampened by the arrival of supplementary workers in the labor
market. Current accounts disequilibria don’t create anymore underemployment situations or
inflationary tensions. Therefore, the defense of exchange rate stability doesn’t imply the
sacrifice of internal equilibrium. It is to be noted that remittances from migrants also
contribute to restore the current account equilibrium and, as a matter of fact, make a great
contribution to this adjustment process.
This counter-cyclical effect of labor mobility has been questioned by the
“maladjustment theory”. Cassel, for example, points out that migratory flows never
synchronize exactly with changes in economic conditions. In fact, it is possible that, when the
newcomers, attracted by the industrial or agricultural booming, arrive in their host country,
the economic activity reverse. Therefore, they have no option but to swell the ranks of the
unemployed. Moreover, some studies emphasize that migrations act not only on the labor
market, as shown previously, but also on the output market. Indeed, an increase in migration
outflows necessary comes with a fall in domestic consumption, and, consequently, in the
labor demand of the emigration region (Erkel-Rousse). In the same way, the immigrants
contribute to increase the demand of goods and services in the one hand, and of labor in the
other hand. These are the reasons why the “maladjustment theory” concludes that
international migration plays a pro-cyclical role.
In conclusion, two points of view clash each other and, as usual in such cases, there is
probably some element of truth in each of them. Actually, the safety-valve role of
international migration during the gold standard doubtless came up against some
imperfections connected with reaction lags of potential migrants as well as problems of
transport and communication typical of that era. Nevertheless, the virtual non-existence of
18
unemployment benefits before World War I reduces the significance of the argument related
to consumption. Indeed, in a society where the unemployed were subject to the public reproof
(in 1850, Adolphe Thiers maintained that “Nobody should hang over the society the burden of
his idleness or improvidence”, quoted by Lévy 56), they had no choice but to leave for the
New World. More than a dream, it meant survival.
III – Econometric Results
The classical analysis of international migration tends to differentiate “push factors”,
i.e. conditions in the emigration country, from “pull factors”, which refer to the host country
situation. Besides, almost all empirical studies concentrate on structural determinants. Hatton
and Williamson, for example, in line with most of other models developed earlier, use five
variables in order to explain average emigration rates per decade: the real wage gap between
the origin country and the asylum one; a demographic variable for lagged natural growth; the
share of the labor force in agriculture; the stock of previous migrants living abroad; and the
emigration rate lagged one decade.
The purpose of this econometric study isn't to reconsider the point of structural
determinants, but rather to focus on the causes of migration fluctuations around the long-term
pattern. Its specificity rests in the introduction of the exchange rate regime. Indeed, with the
exception of Sánchez Alonso, who takes into account the exchange rate variations as an
explanatory variable of the Spanish emigration in the late nineteenth century, there is not any
empirical study connecting international migration and exchange rate, especially during the
classical Gold Standard.
19
The basic model is written:
=itEMIG α
( )it
it
it
it GOLDGDPGOLDGDP −⋅⋅+⋅⋅+ −− 11211 ββ
( )it
ust
it
ust GOLDGDPGOLDGDP −⋅⋅+⋅⋅+ −− 11211 γγ
( )it
it
it
it GOLDWAGEGOLDWAGE −⋅⋅+⋅⋅+ 121 δδ
( )it
ust
it
ust GOLDUNEMGOLDUNEM −⋅⋅+⋅⋅+ 121 εε
( )it
it
it
it GOLDTRADEGOLDTRADE −⋅⋅+⋅⋅+ 121 ζζ
where the subscript i refers to the home country, us to the United States, and t refers to the
time period. All the variables are in variation. The dependant variable itEMIG is the gross
emigration rate; itGDP refers to the domestic product, and US
tGDP to the American product
(both in 1990 Geary-Khamis million dollars). itWAGE represents the wage gap between the
American real wage and the domestic one (US real wage – home real wage); UStUNEM is the
US unemployment rate; and itTRADE is the domestic trade balance (in national currency).
Finally, itGOLD is a dummy variable equal to 1 for gold countries and 0 for non-gold
countries (figure 9).
20
Figure 9 Gold and non-gold countries (1890-1913)
Source : Flandreau, Le Cacheux, Zumer.
1913
1902
1896
1890 1895 1900 1905 1910
Spain
Portugal
Italy
Austria
United Kingdom
Sweden
Norway
Netherlands
Germany
France
Denmark
Belgium
countries in gold
21
The model is estimated on twelve European countries (Austria, Belgium, Denmark,
France, Germany, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, and the United
Kingdom) for the period 1891-1913. The econometric method of general least square (cross
section weights) is used. Results are presented in tables 1 and 2.
Table 1 Determinants of the transatlantic migration variations
1891-1913 Gold Non-gold
itGDP 1− -0.99
(-2.01) -0.37
(-0.39) US
tGDP 1− 0.78 (3.24)
0.21 (0.28)
itWAGE 0.51
(2.16) 2.28
(1.66) UStUNEM -0.20
(-4.77) 0.03
(0.26) itTRADE -0.04
(-2.61) 0.02
(0.45)
Germany France
Netherlands Belgium
United Kingdom Denmark Portugal Sweden Norway
Italy Spain
Austria
-0.031 -0.026 0.020 0.023 0.028 0.035 0.048 0.056 0.069 0.074 0.097 0.138
Total panel observations
R-squared 274
0.225
Table 2 Descriptive statistics
22
Mean Median Standard deviation
itEMIG 0.05 0.03 0.31
it
it GOLDGDP ⋅−1 0.02 0.02 0.03 ( )i
ti
t GOLDGDP −⋅− 11 0.003 0.00 0.02 it
ust GOLDGDP ⋅ 0.03 0.02 0.05 ( )i
tus
t GOLDGDP −⋅ 1 0.01 0.00 0.03 it
it GOLDWAGE ⋅ 0.003 0.00 0.05 ( )i
tit GOLDWAGE −⋅ 1 0.002 0.00 0.02
it
ust GOLDUNEM ⋅ 0.04 0.00 0.29 ( )i
tust GOLDUNEM −⋅ 1 0.02 0.00 0.18
it
it GOLDTRADE ⋅ 0.04 0.00 1.11 ( )i
tit GOLDTRADE −⋅ 1 0.07 0.00 0.59
Estimations logically show that European emigration rate variations of Gold Standard
members were positively correlated to US GDP and wage gap variations on the one hand, and
negatively correlated to domestic GDP, American unemployment, and to home current
account variations on the other hand. For these countries, the t-statistics are significant at the
5% level. In terms of the “push/pull” discussion, the results mean that, when the current
situation at home got better (economic activity growth, increase in the domestic wages,
improvement in the trade balance), or when the American conditions worsened (business
slowdown, rise in the unemployment rate, drop in the relative real wage), the emigration rate
fell. On the contrary, a recession in Europe, combined with an upswing in the American
economy, brought about an increase in migrants’ flows.
As for non-gold countries, there were no significant relationship between emigration
rate variations and activity indicators, which tends to prove that the abandonment of the
objective of exchange rate stability helped them to mitigate the impact of asymmetrical
disturbances on their economy. This result agrees thoroughly with conclusions of Sánchez
23
Alonso, according to whom the peseta depreciation between 1892 and 1905 would have
increased the emigrant number in 40%, i.e. about 400,000 persons.
On fixed effects, several interpretations can be put. First, the so-called “core” countries
of the Gold Standard, i.e. Germany, France and the United Kingdom, are characterized by the
lowest fixed effects. It partly corresponds to the fact that their capital markets were developed
enough to realize the adjustment without the need to export labor: “The financial markets of
the core nations in the gold club (London, Berlin, Paris, New York) tended to enjoy a
competitive advantage in pulling power over the financial centers in other gold-club nations”.
(Gallarotti). This point is in line with the hypothesis held by Panic related to the substitution
between international migration and capital mobility: when financial markets trusted a
country, it could finance its current account deficit at a lower cost, and labor outflows were
limited; as for the others, emigration helped to solve the adjustment constraint.
Then, it seems there was a straight connection between the rural world organization
and the role of emigration as an adjustment mechanism. Thus, in France, the parcelling up of
land into small plots following the Revolution contributed to maintain a high proportion of
farming population (41% in 1911 compared to 36.8% in 1907 in Germany, 23.2% in 1910 in
Belgium, and 8.8% in 1911 in the United Kingdom), and it occurred frequently that workers
were peasants too. Therefore, “in the case of an industrial crisis, the farming activity acted as
a buffer and limited the rise in urban unemployment […]. Through small farming properties,
family relations served as a crisis absorber” (Vidal). This French specificity could explain
the minor role assigned to labor mobility. In other respects, the explanation of the decreasing
level of emigration in Germany probably lies in the implementation of a social legislation
during the 1880’s: “Now, what is the reason for this low rate of emigration from Germany
since 1894? I think it may be attributed in large part to the Bismarkian Social Legislation”
(Smith).
24
Finally, the results tally with the hypothesis ventured all through this paper:
international migration, in countries that followed a fixed exchange rate policy until 1914,
was an essential mechanism to lessen the consequences of the other adjustment instruments.
Consequently, it’s logical to think that the Gold Standard stability was partly due to the free
labor mobility.
Conclusion
Did the classical Gold Standard foster international labor flows, or was transatlantic
migration the sine qua non for the stability of the International Monetary System (IMS)
before 1914? There is still no answer to this chicken/egg problem, but it doubtless worked in
both directions. It’s very probable that part of the migration phenomenon wouldn’t have
occurred without the exchange rate regime in place before World War I. This point doesn’t
mean that the IMS originated the mass population flows. The importance of structural
determinants has been underlined in this paper, and long swing pattern of international
migration couldn’t be understood only with the Gold Standard explanation. Nevertheless,
econometric tests show that there was a strong link between exchange rate regime and
migratory cycles. Concurrently, thanks to the free labor mobility, the Gold Standard members
were able to maintain the parity and the convertibility of their currency with gold, and the
costs of this fixed exchange rate policy lowered.
Following this idea, it’s possible to wonder whether the implementation of restrictions
to migration after World War I had precipitated the collapse of the Gold Standard system.
Actually, the adoption in 1921 of a quota system, based on the birth country, in the United
States, brought about massive cutbacks in the number of immigrants in the American soil. In a
25
similar way, Canada decided, from 1923 onwards, to set bounds to inflows of migrants
proceeding from Asia, and, from 1933, to Southern and Eastern Europeans. As for Australia,
it promulgated in 1925 a law that restricted the entry of non-British into its territory. The
European reception countries, notably France and Belgium, also began to stiffen their
migratory policy as well as the Latin America countries, particularly affected by the shock
wave of the Great Depression. At the same time, and despite the attempts of the Genoa
conference, in 1922, to save and rebuild the pre-war International Monetary System, the Gold
Standard consensus burst into pieces. Was it a consequence of the new restrictions to
international migration or merely a coincidence? The fact remains that the tightening of
migration regulations was accompanied by a new era of currencies fluctuations.
If the links between international migration and exchange rate regimes were
confirmed, important conclusions in terms of migratory policies should be drawn. Actually,
the current process of globalization is distinguished by significant flows of goods, services,
and capital, but international labor movements remain limited, even within the European
Union where workers can in theory flow freely: “The number of EU nationals resident in
another Member State is only 5.5 million out of 370 million”, i.e. 1.5% of the European
population (Veil). Therefore, and not surprisingly, our world isn’t an optimum currency area,
which may explain the spread of flexible exchange rates. In that perspective, exchange rate
fluctuations shouldn’t be considered as an optimal mechanism of adjustment in case of
asymmetrical disturbances, but rather as a second-best optimum.
26
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