The Effect of Wage Payment Reform on Workers’ Labor Supply, Wages, and Welfare

Esther Redmount, Arthur Snow and Ronald Warren

The Journal of Economic History, 2012, vol. 72, issue 4, 1064-1087

Abstract: We examine the economic consequences of an 1886 reform in Massachusetts that mandated the weekly payment of wages. We derive conditions on key elasticities of labor supply that determine the qualitative effects of the reform on workers’ effective wages and utility. We match census and administrative data on workers in a Lowell textile mill for a period encompassing the switch from monthly to weekly payment. Empirical estimates of a labor supply equation imply that the reform increased workers’ effective wage rates and welfare. The reform also decreased the mill workers’ average wage, as predicted by the theory of compensating differentials.

Date: 2012
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