The Extents of the Canadian Labour Market before 1930
March 8, 2000
J.C. Herbert Emery
Department of Economics
University of Calgary
Calgary AB
T2N 1N4
hemery@ucalgary.ca
Abstract
I analyse real wages series for 12 Canadian cities for the period 1901 to
1926. The analyses of these series reveal that Canada’s regional labour
markets were integrated by 1926 and regional real wages in Canada were
converging, but not towards equality. By 1926 a clear regional structure
to real wages in Canada is apparent and the regional structure in real
wages looks remarkably similar to the regional profile of per capita
incomes for the period 1926 to 1962. Thus, it would appear that regional
income disparities are an inherent trait of Canada’s heartland-hinterland
structure. The reasons for the persistence of unequal real wages are not
known, but it appears that high wage labour markets were Protestant
labour markets while Catholic workers were proportionately more
important in the lower wage markets. Whether the relationship between
religious affiliations of workers and real wage levels across regions
reflects human capital differences, or discrimination, it appears as though
Canada had spatially integrated, but socially segregated, national labour
markets by 1926.
The existence of income differentials across Canada’s regions and provinces has been a
persistent feature of the Canadian economy since at least 1890 (Green 1971). Further, the
disparities in regional incomes have been unaffected by dramatic changes in market
forces and government policy over the last century. More often than not, the Canadian
consensus as to the proximate cause of the persistence in regional income disparities has
been a dysfunctional Canadian labour market. Whether the cause of the dysfunction in
the labour market is structural, a mismatch of job demands in one region and the skills of
the supply of workers available from another region, or that policy related, government
transfers discourage labour mobility, Canadian workers are viewed as not fully exploiting
available arbitrage opportunities in Canadian labour markets. Consequently, as D. Green
(1994) points out, Canadian policy recommendations for eliminating regional income
differentials in Canada have focused on encouraging an expansion of the extents of
Canada’s labour markets. Under a simple linear model of progressive labour market
integration, government should identify and remove the main obstacles to arbitrage.
Efforts to remove barriers to arbitrage have included efforts to improve
information about job opportunities in other regions, and to aid in the matching of
workers in one region with jobs in another region. For example, before 1930, Canadian
governments established labour exchanges to facilitate the movement of under-employed
workers to other provinces to find work. Today, HRDC operates an on-line National Job
Bank and an on-line Electronic Labour Exchange that appear to be revivals of the preDepression approach to reducing unemployment. The roles of government programs and
transfers to individuals have been viewed as a source of the labour market dysfunction.
For example, Courchene (1981) highlights the role of Canadian policies like
1
unemployment insurance in reducing the degree of inter-regional labour mobility that has
contributed to the persistence of regional income differentials. Consequently, reforms to
Canada’s unemployment insurance system increased the emphasis on retraining displaced
workers. Similarly, Coulombe (1999) argues that federal transfer payments, by enriching
the levels of public goods and services in lower productivity Canadian regions, reduce the
incentive for workers with high levels of human capital investment to move.
Needless to say, policy efforts aimed at extending the geographic margins of
regional labour markets and improving the operations of labour markets through EI
reforms, and the expanded investment in training for displaced workers, have not
eliminated regional income disparities. At this point there are two candidate explanations
for this outcome. First, despite the best intentions and efforts of government, regional
labour markets remain weakly integrated or non-integrated, leading to no or slow
convergence to equal per capita incomes across regions. Second, it is possible that the
failure of government initiatives to reduce income disparities through encouragement of
market forces reflects that regional labour markets in Canada are adequately integrated
and the regional income disparities are “equilibrium income differentials”. They are not
arbitraged away because the differences in regional incomes do not reflect arbitrage
opportunities.
Our inability to distinguish between these two competing hypotheses at this point
reflects that labour market dysfunction is a diagnosis asserted in light of regional income
disparities as a symptom of non-integrated markets in a standard general equilibrium
trade model. This diagnosis has been maintained despite the long time recognition of
alternative models of the Canadian economy that would support different incomes in
2
equilibrium for integrated regional labour markets. A direct test of the links between
Canada’s regional labour markets has not been provided.
Given the existence of regional income differentials since at least 1890, an
important contribution towards an understanding of the proximate reasons for the
differentials would be to develop better information about the structure, evolution and
operations of Canadian labour markets early in Canadian economic development. That is
the purpose of this paper. By examining trends in regional real wages and regional real
wage growth rates for the period 1901-1926, I seek to determine whether regional income
disparities reflect that Canadian workers do not exploit arbitrage opportunities, or,
whether regional income disparities reflect equilibrium income differentials that will not
be eliminated through market forces. If the former is the better description, and nonintegration of regional labour markets is the source of regional income disparities, then
efforts of Canadian policy makers to date are well targeted. On the other hand, if the
latter description is the better of the two, then more attention should be paid to long term
factors in Canadian development as possible reasons for the income disparities. For
example, regional specializations in production and/or the early industrial leadership of
Ontario could be causes of regional income disparities that exist in equilibrium that will
not be removed by market forces since they do not reflect an opportunity for arbitrage.
This paper presents analyses of real wage series for several building trades
occupations in 12 Canadian cities over the period 1901 to 1926 to determine the
geographic extents of Canadian labour markets. Emery and Levitt (2000) follow Bertram
and Percy’s (1979) and Allen's (1994) work to construct inter-urban inter-temporal price
indexes to construct real wage series for 12 Canadian cities. Analyses of the real wage
3
series suggest that by 1926 Canada’s regional labour markets were integrated to an extent
that constitutes a national labour market. Real wages in Canadian cities were converging,
but not to equality. Cities in Ontario, British Columbia and Alberta emerged as high
wage labour markets while the Maritime provinces, Quebec, Manitoba and Saskatchewan
emerged as lower wage labour markets. At this point I offer some speculative insights
into the reasons for the equilibrium real wage differentials that point to the Canadian
labour market as spatially integrated but socially segregated.
1. Labour Mobility, Income Disparities and the Canadian Labour Market
Economic theory relating to adjustments in regional inequalities highlights interregional flows of people, goods or funds (Mansell 1975, 5). Heckscher-Ohlin theories of
trade between nations, or regions, demonstrate that factor prices (wages paid to labour,
and the return to capital) are equalized through commodity trade. Since per capita
incomes that are often analysed in convergence studies reflect factor earnings, factor
price equalization across regions would suggest that regional per capita incomes would
also converge. If trade in commodities between regions is limited, but labour and capital
move freely between regions, then I would expect labour and capital to migrate between
regions until wages and the return to capital are equalized in both places. Barry (1996)
points out that in traditional trade models, labour mobility between regions should
equalize both GDP and GNP per head in both regions. An alternative to the trade models
are neo-classical growth models. In the standard two-factor growth models (labour and
capital), factor mobility always promotes convergence in per capita output (Taylor 1999).
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In the context of the convergence predictions of standard trade models and neocclassical growth models, Mansell (1975) suggests that a puzzling aspect of the lack of
convergence in income levels across Canada’s provinces is that Canada has had a high
degree of inter-regional factor mobility and essentially free inter-regional trade. Further,
Mansell suggests that an important challenge is to explain how observed wage and
income inequality in Canada could have been maintained over time when there have been
large differences in rates of development and growth.
Inter-regional factor mobility and inter-regional trade in goods are unquestionable
features of Canadian history. Consider the years 1896 to 1914, a key period in Canadian
economic development. The Canadian prairies were settled, wheat was exported, and the
Canadian economy grew rapidly. Under the traditional Wheat Boom story for this
period, prairie wheat exports "transformed the static and isolated regions (of Canada) into
an integrated and expanding national economy." (Rowell-Sirois Book I, 93). While the
term "national economy" is vague as it combines notions of goods market integration and
factor market integration, the emergence of a national labour market is part of the story:
The development of the West was a national achievement and the
participation of all areas in a common effort fostered a new sense of
nationhood. Sons and daughters of the Maritimes and Central Canada
migrated to the plains and built up the West, thus forging innumerable
links between older Canada and the new." (pp. 91-92)
A popular perception of the Canadian labour market at the turn of the century
which suggests the existence of an integrated national labour market comes from Avery
(1979, 8) where in February a labourer might find himself "a lumber worker in Iroquois
Falls, Ontario; in June a railroad navvy along the National Transcontinental; in August a
harvester in Grenfell, Saskatchewan; in November a coal miner in Fernie, British
5
Columbia." In a similar vein, Voisey (1988) describes the high degree of mobility that
was typical of the pioneers who settled Vulcan Alberta before 1910. One 31 year old
Vulcan settler in 1905 left Ontario for Winnipeg; moved onto Calgary; laboured
throughout British Columbia; panned for gold in the Klondike and soldiered in South
Africa before moving to Alberta.
The mobility of workers into Canada, and across Canada’s regions is not only
implied by anecdotal evidence. Quantitative evidence shows that 1890 to 1910 was a
period of massive population redistribution across Canada's regions. Green (1994, 156157) relates the population movements to the integrating influence of the rise of prairie
wheat exports:
The Western economy was the key factor in Canadian development
between 1900 and 1930. At the turn of the century it was largely unsettled
and was only Weakly integrated into the Canadian economy as a whole.
By 1930 this situation was completely reversed… At the center of this
transformation was a large movement of people. The immigrants came
not only from eastern regions in Canada but from Europe, especially
Britain, and a significant number came from the United States… The
rapidity of this transformation from uninhabited lands to a settled viable
economy remains one of the central dynamic features of Canadian
development during this three-decade period.
Beyond the observed population and goods movements, there are other reasons to
believe that Canada could have had a national labour market before 1930. Canada's rapid
economic development before World War I coincided with what Williamson (1995,1996)
characterizes as an emergence of a global economy with convergence of real wages
across countries. By 1890, Canada had a transcontinental railway to link the prairie
region with the East. Good information about economic opportunities on the prairies was
available. Struthers (1983) describes in detail how the Federal government created and
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operated "labour exchanges" to aid the dissemination of information to enhance labour
flows in Canada. Further, immigrants responded to labour market conditions in deciding
where in Canada they would settle (Green and Green 1993).
While the "necessary conditions" for the existence of an integrated national
economy seem to have been met before 1930, some evidence would appear to be at odds
with the existence of an integrated national labour market. If regional economies are
integrated, one expects convergence in income levels, the opposite of what Green (1967,
1971) finds over the Wheat Boom period. Green (1971) suggests the divergence of
provincial incomes could reflect a Kuznets Curve description of Canadian economic
development. In the early stages of development, inequality of regional income
distribution increases and over time decreases as regional incomes converge. Williamson
(1965) finds that with the exception of Canada, this pattern has been typical for the
history of developed nations. For Canada, both Green (1971) and Williamson (1965)
find that any convergence as part of the Kuznets relationship was weak at best. McInnis
(1968) argues that Canada did not display any Kuznets effect making its development
process an exception to the usual development process.
Norrie and Owram (1996, 345) interpret movements of labour (and capital) over
Canada’s history as evidence that factor flows necessary for factor price equalization
across regions were taking place. They pose the question that remains; why were these
flows insufficient to remove regional income differences? One possibility is that World
War I, World War II and the Depression interrupted the convergence of regional incomes
in Canada as Williamson (1995) suggests these events interrupted the development of the
7
global labour market. If this is the case I have to address why the convergence process
did not resume after World War II.
Another possibility for the existence of regional income disparities is that despite
the observed movement of labour and goods, Canada’s regional economies were not
integrated to a large enough extent. Struthers (1983) recognizes the existence of factor
and commodity movements across Canada, but he sees the Canadian economy as
somewhat less than a national market:
"Staples also helped to create an economy that was more regional
than national. Until the development of the Canadian West as a major
wheat-producing region between 1896 and 1930, few economic links
existed to bind the diverse regions of Canada together. Trade was more
often with an external metropolis than with another Canadian province.
As a result, the economic fortunes of Canada's regions, particularly where
secondary manufacturing was Weak, could and did vary widely,
depending on the health of the export staples. Unemployment rates east of
the Ottawa River have traditionally been double those of Ontario and the
West, and wage levels between regions have varied widely as Ill. Until the
1920s, labour markets in Canada flowed more frequently along a northsouth than an east-West axis, with the United States providing a major
focal point for the talented and the jobless…To the extent that a `national'
labour market did exist, it revolved around Western wheat which, in the
words of the RoIll-Sirois report, 'transformed the static and isolated
regions into an integrated and expanding national economy." (page 5)
Boyer and Hatton (1994, 84) point out that there is no necessary link between
migration and the extent of market integration; "analyses of the pattern and extent of
migration movements shed little light on the issue of integration. Markets could be
perfectly integrated but exhibit little migration or they could exhibit high rates of
migration but be poorly integrated." Boyer and Hatton suggest that patterns of labour
market integration resulting from economic development reflect the existence of
established channels of migration between different regions. Rosenbloom (1996)
8
emphasizes similar notions with his discussion of labour market institutions that
influenced migration patterns such as chain migration where current migrants follow the
same paths as their predecessors.
Unlike a convergence in per capita incomes across regions, a lack of convergence
in wages paid for labour despite large migrations would not be unique to Canadian
history. Boyer and Hatton (1994, 84) find that in Victorian Britain, during a time of
"considerable migration opportunities for arbitrage were not fully exploited." Similarly,
Rosenbloom (1990, 98) finds that the persistence of large regional real wage differentials
in the US after the Civil War suggests that "significant variations in the relative scarcity
of labor persisted over more than three decades and that potential opportunities for
arbitrage went unexploited." Allen (1994, 125) finds that "despite massive migration
both ways across the border with the United States, Canada preserved a distinctive wage
structure." In contrast to Williamson's (1995) view of integrated international labour
markets, Allen (1994) feels that the persistence of distinctive wage structures despite
massive migrations makes it impossible to believe that labour markets were well
integrated internationally. A. Green (1994) similarly finds that rural-urban wage ratios for
the Canadian prairies moved quite differently from rural-urban wage ratios for the United
States.
If Canada could remain non-integrated with international labour markets, in
particular that of the US, and it is the national level of analysis rather than the
international level, then would it not follow that that regions within Canada could also be
non- integrated? As D. Green (1994, 32) "If a different wage structure can develop in
Canada relative to the United States in spite of massive migration, why cannot a different
9
structure develop in the Atlantic region relative to the rest of Canada, again in spite of a
massive migration?” If Canada’s regions developed different wage structures, then we
also need to know why they did. Are the wage differentials transitory but the rates of
convergence are slow? Are the wage differentials equilibrium differentials resulting from
the regional structure of the Canadian economy? Or are the differentials resulting from
non-integration of regional labour markets?
2. Labour Market Integration: Concepts and Measures
An economist’s notion of integration of geographically distinct markets is based
upon the notion of the law of one price. In the absence of transportation costs, if buyers
and sellers of a homogeneous good have complete information of the price of that good
in the two markets, then in equilibrium the equilibrium price for the good is the same in
both markets (Stigler and Sherwin 1985). If demand for the good rises in market A, then
the price of the good will rise at A triggering additional supply into A from market B.
Equilibrium is restored once the expansion of supply is large enough to restore the
equality of the price in market A and B. This concept of one price can be generalized
such that if there are transportation costs, or local amenities or disamenities associated
with a given location, then prices can differ in equilibrium, but by no more than the
amount of transportation costs or “compensating differentials”.
In applying this notion of market integration to labour market integration,
Rosenbloom (1990) characterizes a completely integrated labour market as one where
workers at every location are aware of all employment opportunities elsewhere and
through migration can offer their services to employers elsewhere. If there are no sitespecific amenities or disamenities, labour market equilibrium will have all workers of
10
equal ability doing identical work receiving the same real wage. If workers are not
indifferent to the location where they work, migration between locations will cease when
real wages differ in equilibrium only to the extent that the individuals are indifferent
between working in the two locations.
Labour market integration is most likely to be less than complete and determining
the degree of labour market integration of two locations is primarily an empirical
problem. Complete integration may be prevented by imperfect information about
employment opportunities in distant locations; by institutional and financial constraints
that impinge on a potential migrant’s ability to act on information as to employment
opportunities in other places, and given that migrating is costly and potentially
irreversible, uncertainty as to the persistence of favorable labour market conditions in
other markets may lead workers to delay or forego acting on information about
employment opportunities.
For our purposes, I am interested in determining the degree of labour market
integration across Canada’s regions. A popular approach to this problem has been to
calculate the correlation coefficient of wage changes in two labour markets (Stigler and
Sherwin 1985). The higher the correlation coefficient, the more closely integrated two
markets are assumed to be. Boyer and Hatton (1994) point out that an important
shortcoming of this approach is that one cannot distinguish between a strong tendency for
instantaneous arbitrage (market integration) and common shocks to labour demand and
supply at each location (spurious correlation). A second approach is to search for trends
over time in measures of wage dispersion (e.g. the coefficient of variation) across several
markets. Diminishing dispersion of wage rates is interpreted as evidence of an increased
11
degree of labour market integration. As with the correlation coefficient of wage changes
across locations, the measure of dispersion approach has limitations for identifying labour
market integration; an absence of a distinct trend in the measure of dispersion could
reflect either very well integrated markets and very poorly integrated markets (Boyer and
Hatton).
I follow the approach of Boyer and Hatton (1994) who apply an error-correction
modeling approach that is based on a structural model of the forces that determine the
relationship between wage rates in two locations.
Boyer and Hatton present a model where migration is the key force for wage
convergence between two labour markets i and j. They express the net migration of
labour from region j to region i at time t as:
 W  
m jit  c  log  it 1   k 


  W jt 1  
c is a measure of the responsiveness of migration from j to i to a given wage differential
between markets i and j at time t-1. The overall size of net migration from j to i depends
upon the size of the wage differential and on the responsiveness of migration to the wage
differential. c measures the degree of integration between labour markets j and i. As c
approaches infinity, labour is perfectly mobile and the two markets are perfectly
integrated. k represents a long run equilibrium wage ratio between i and j due to factors
such as migration costs, differential labour productivity due to regional specialization in
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production or different production functions, or non-wage advantages of market j to
market i.1
Migration influences the wage ratio for the two markets through the adjustment of
labour supply in each market. Suppose that a positive labour demand shock affects
market i so the Wi rises relative to Wj. If c>o, hence migration of labour links the two
markets, then labour will flow from j to i until the equilibrium wage ratio is restored. For
example, if log(Wi/Wj)>k, then labour moves from j to i which will tend to lower Wi
and/or possibly raise Wj. The migration continues until log(Wi/Wj)=k. The speed at
which the equilibrium is restored depends upon the magnitude of c. The closer c is to 0,
the longer the time to convergence to the equilibrium wage ratio. As c tends to infinity,
adjustment is instantaneous and there is no meaningful sense in which a demand shock
can affect i but not j since they are the same market. The long run tendency is towards
the wage ratio Wi/Wj =ek. If k=0, then the long run equilibrium wage ratio is Wi/Wj=1;
real wages are equal in equilibrium. If k0, then I would observe convergence to an
equilibrium wage differential.
In terms of identifying the possible sources of regional income disparities in
Canada that may result from labour market integration, I are interested in three
possibilities. First, if c=0, hence two labour markets are not integrated, possibly for
reasons such as imperfect information or government intervention, then it is possible that
real wage differentials reflect that arbitrage opportunities Were not exploited. Second, if
c0 and k=0, then markets are integrated and real wages are equal in the long run.
Failure to observe convergence in real wages between markets could reflect that the rate
1
In the latter case, an example would be if market i is in a small isolated place, then workers may require
higher wages to be indifferent between working in i as opposed to j. In equilibrium labour will only
migrate from j to i if the wage in i is at least k percent higher than the wage at j.
13
of convergence is slow, and/or market disruptions hamper the convergence tendency. A
third scenario is possible where government initiatives to encourage an expansion of the
extents of Canada’s labour markets will do nothing to eliminate regional wage disparities.
If c0 and k0, then labour markets are integrated but convergence is to a long run
equilibrium differential. If k0, then we cannot expect market forces to eliminate
regional wage disparities.
To generate an empirical model, Boyer and Hatton introduce a simple model of
labour demand in two markets (which also allows for migration to and from third
markets)2 that allows them to express the relation between two labour markets in terms of
the wage alone. The model yields the following estimable relationship:
W 
 log( Wit )  d0  d1   log( W jt )  d 2  log  it 1   vt
W 
 jt 1 
d1 reflects the degree to which common forces affect markets i and j. d2 is a measure of
the degree of integration between the two markets and reflects the size of the unobserved
mobility parameter c. If c=0, then d2=0. Thus, the sign and size of d2 implies the
direction and strength of migration flow between the two markets. This type of model is
an error correction model. Boyer and Hatton highlight that the two wage rates are related
in changes but the error correction term d2log(Wi/Wj) prevents them from diverging over
time in levels if d2 is negative.
2
Integration of two Canadian labour markets could reflect the influence of a common third market. For
example, workers in Halifax and Montreal may not view the other city as a possible place to move for
work, but workers in both cities respond to wage changes in the Northeast US. It could also reflect the
influence of immigrants from Europe who view Montreal and Halifax as alternative locations for work.
Further, in a given urban labour market the potential supply of labour will reflect the responsiveness of
labour outside the region to positive local wage shocks and the responsiveness of the workers in the rural
hinterland for the city.
14
This empirical specification also yields an estimate of the long run equilibrium
wage ratio for markets i and j. A long run stationary equilibrium is characterized by
log(Wit)= log(Wjt)=vt=0. In this long run equilibrium, log(Wi/Wj)=-d0/d2, thus
–d0/d2 is an estimate of k. Finally, d2 can be used to express the speed of adjustment of
the wage in region i to a shock to the equilibrium wage ratio holding Wj fixed. The
predicted lag between an initial shock and a return to equilibrium is:
Ta 
1  d2
d2
This measure reveals that if d2=-1, then market are perfectly integrated since the return to
equilibrium is instantaneous.
Finally, the regression equations also include a time trend variable and a variable
which interacts the time trend variable with log(Wi/Wj). As such, I will be able to
characterize d0 and d2 in 1901 and 1926.
3. Wage Data and an Inter-Urban Intertemporal Price Index
To estimate the error correction model introduced in the previous section of the
paper, I need observations on real wages for different labour markets in Canada. Emery
and Levitt (2000) construct real wage series for 12 Canadian cities with data from
Department of Labour supplement to the Labour Gazette on hours and wages. From this
source I obtained nominal hourly wage rates for carpenters, bricklayers and builders’
labourers for the period 1900 to 1926. The cities are: St. John, Halifax, Quebec City,
15
Montreal, Ottawa, Toronto, Hamilton, Winnipeg, Regina, Calgary, Edmonton and
Vancouver.3
Figure 1 shows Emery and Levitt’s (2000) inter-urban price indexes that yield real
wages that reflect the purchasing power of the wage in city j at time t in terms goods in
the base city (Toronto) in the base year (1913). This intertemporal inter-urban index is
obtained by dividing the price of commodity m in city j at time t by the price of
commodity m in Toronto in 1913 to create the price relatives that are then aggregated
together using the budget expenditure weights in Bertram and Percy (1979). For the
years between 1900 and 1905 and between 1905 and 1909 I have used linear
interpolation to get the price indexes values.
Before 1914 there are clear differences in price levels between cities West of the
Lakehead and east of the Lakehead. The higher price levels prevailing in the Western
cities reflect that food prices were somewhat higher than food prices in the east, but rental
costs for housing were substantially higher. High rents for housing and high food costs
were a characteristic of the Canadian prairies in the frontier stages according to Voisey
(1988).
Through World War I, prices in all cities increased dramatically. After World
War I, price levels fell and stabilized across Canada and the Western/eastern division in
cost of living had disappeared somewhat.
Despite MacKinnon’s (1996) concerns over the usefulness of the Department of
Labour wage data, I chose to focus our analysis on them for several reasons. First, the
Department of Labour data provides us with a larger set of cities than the CPR wage data
set. Second, the CPR wage data are primarily useful for general wage trends before
1918. After 1918, institutional factors specific to the determination of railway wages
become important. Finally, our analyses of the MacKinnon CPR data suggested that I
may be observing a wage policy of a large firm that may or may not be representative of
the broader labour market.
3
16
Before World War I nominal wages for these occupations were highest in
Vancouver, the prairie cities and the Ontario cities than they were in the Quebec and
Maritime cities. Nominal wages increased substantially through the war, fell and then
stabilized after the war. By 1926, there is a split in the levels of nominal wages East of
Ottawa and West of Montreal for carpenters. A similar divergence also holds for
carpenters. MacKinnon’s CPR wage data shows a similar division in the levels of
nominal wages between the prairies and BC and Ontario and Quebec, at least until after
World War I at which time the regional structure of wages for various railway
occupations disappear for institutional reasons specific to railways. As with the
Historical Statistics wage data, nominal wages increased dramatically during World War
I, fell and stabilized after 1920.
While nominal wages in the West of Canada Were higher than in the east, it was
Ill known that the cost of living was higher in the West, and the early conditions of life in
the West made it a less desirable place to settle than the east.4 Figure 2 shows the nominal
wage series for builders’ labourers deflated by the interurban price index. Real wages
were highest in Vancouver, Hamilton and Toronto. Despite high nominal wages in
prairie cities, real wages on the prairies before World War I are as low as real wages in
Quebec and the maritime cities. For the labourers, real wages in Regina and Winnipeg
remain below those of Vancouver and the Ontario cities. In contrast, real wages paid in
Calgary and Edmonton after World War I compare favorably to those paid in Ontario and
For example, Voisey (1988, 179) observes that “Even though rural
schoolboards offered higher wages than might be obtained back east, the teachers seldom
gained, for they also faced proportionately higher living costs. Many did not wish to
work in an isolated frontier schoolhouse in any event. And even in prosperous times
school-boards did not always pay on time and in full.” Thus an interesting issue is how
real wages compare across Canadian cities over this period.
4
17
BC. For carpenters, the story is somewhat different as the real wages in the prairie cities
rise to similar levels as Vancouver and the Ontario cities after 1907. For both the
labourer and carpenter occupations, clear regional divisions in real wage levels are
apparent by 1926. The maritime and Quebec cities have the lowest real wages while
Vancouver and the Ontario heartland cities have the highest real wages.
MacKinnon’s CPR wage data provides a slightly different picture than the
Department of Labour wage data. Deflating the CPR wages suggests that real wages
Were lowest for Quebec, and highest for BC. Real wages in Ontario and the prairies
were roughly equal and lay in between the Quebec and Vancouver levels. There is still a
clear regional structure to real wage levels (at least before 1918) but the disadvantage of
the prairie work location relative to Ontario is not apparent. For CPR labourers, real
wages for Ontario based workers are higher than Prairie based workers until 1907. For
the CPR fitters and machinists, there is no systematic difference in the wage levels
between regions.
The Error Correction Estimates
The error correction model for wage changes in two labour markets was estimated
for each of 132 city pairs for the wage data from the Department of Labour sources. The
observations of real wages for all three building trades are pooled for the estimations.
Occupation dummy variables are included to allow for different constant terms but the d2
is common to all three trades. The detailed regression output has not been included in
this draft due to the volume of numbers to report. Instead, the statistics relating to the
18
degree of market integration between city pairs and the implied equilibrium wage ratios
are discussed exclusively.5
Figure 3 presents matrices of labour flows from one city to another implied by the
estimate of d2 in the error correction specification for 1901 and 1926. The cities in the
rows of the matrices are the cities receiving labour, while the cities in the columns are the
cities sending labour. To help interpret the numbers, shading of cells reflects the size of
the d2 estimates. The lighter the shading in the cell, the stronger is the implied
integration of the two cities.
The upper panel of Figure 3 presents the estimates of d2 for all of the city pairs.
The estimates suggest that labour markets in Canada in 1901 were small and regional in
nature. Only 25 of 132 estimates of d2 are significant at size 5 percent. With the
exception of Montreal, the estimates suggest some integration of all cities Toronto and
East of Toronto. Hamilton appears to have been neither a recipient of Maritime workers,
nor was Hamilton a source of workers for the Maritimes. The estimates for 1901 also
suggest that Toronto and Winnipeg were strongly integrated with two way flows of
labour. Winnipeg was receiving labour from the Maritime cities, Quebec city and
Toronto. Regina also received labour from the same cities, and Ottawa. The estimates
suggest that labour responded to opportunities within its own region and labour in the
5
The detailed regression results are available upon request. A time trend variable is also included in the
model specification. The error correction models Were also estimated using the CPR wage data. These
results are not reported here. The CPR wage data for 1901-1926 and 1901-1914 indicate that Toronto,
Winnipeg and Montreal Were one labour market; labour flowed to Vancouver from Toronto and Montreal
but not from Vancouver to those cities. Winnipeg and Vancouver Were integrated markets for CPR
workers. The estimations reveal that real wages were converging to equilibrium differentials that reflect
the regional wage structures revealed in Figure 7. In summary, compared to the Dept. of Labour data, the
degrees of integration are higher but the overall story of integrated labour markets with convergence to
equilibrium real wage differentials is the same..
19
eastern markets was responding to opportunities in Western Canada. The strength of
integration was generally weak however.
The lower panel of Figure 3 presents that estimates of d2 for city pairs in 1926.
With some notable exceptions, the strength of labour market integration has generally
increased over that observed for 1901 as the estimates of d2 for 1926 are larger. In
addition, 113 of 132 estimates of d2 are significantly different from zero at size 5 percent.
By 1926 Canada had a national labour market. The lower values for d2 for some city
pairs reflect the conditions of some markets by 1926. For example, workers appear to be
shunning Regina by 1926, while workers in Regina were responding to opportunities in
any city West of Montreal. Similarly, by 1926, only workers in Montreal appear to have
been interested in wages in Winnipeg. Workers in Winnipeg appear to have been moving
to any city other than Regina and Quebec City. Reflecting the movement of the frontier
of settlement beyond Saskatchewan to Alberta, by 1926, Alberta was receiving workers
from across all of Canada. Finally, the Maritime and Quebec cities are largely a source
of labour for other regions and less of a destination for labour from other regions.
Figure 4 presents the estimates of the long run real wage ratios between the set of
cities and Toronto in 1901 and 1926. The profile reveals that in 1901 Vancouver and the
Ontario cities had the highest real wages in the country. The prairie, Quebec and
Maritime cities had lower and comparable real wages. The prairie labour markets were
not lucrative labour markets early in the wheat boom period. At the same time, land
purchase may have been an important attraction for migrants and that may explain the
links between Toronto, Winnipeg and Regina despite the low prairie wages.
20
By 1926, once price levels across the regions have converged, the equilibrium
wage profile has undergone some changes from that of 1901, but still real wages are not
converging to equality. The maritime city wages relative to Toronto wages are
unchanged from 1901. In the prairie cities, the ratio of real wages to Toronto real wages
has increased. Winnipeg and Regina remain lower wage labour markets, but wages are
higher than in the maritime cities. In contrast, Calgary and Edmonton have real wages
that are as high, if not higher than those paid in Toronto.
By 1926 regional real wages converged in a way that Canada had a distinct
regional wage structure that suggests that the absence of complete factor price
equalization was not the result of non-integrated, or weakly integrated regional labour
markets. The long run tendency of the national Canadian labour market was to have low
wage regions and high wage regions. The question that remains is why these long run
real wage differences exist across the regions.
Models that support equilibrium real wage ratios typically present situations in
which labour is not perfectly mobile. This imperfect mobility must then be reconciled
with the view that Canada had an integrated national labour market where labour did
move across regions in sufficient amounts to exhaust arbitrage opportunities. My
speculation at this point is that the more accurate portrayal of Canada’s labour market is
one of geographically integrated, but socially segregated labour markets.
After examining several characteristics of the populations of the 12 cities one
feature of the populations appears to have some explanatory power for the nature of the
real wage profile. Figure 5 presents the proportions of city populations that were
Catholic in 1911 and 1931. Other than Montreal and Quebec, which are overwhelmingly
21
Catholic, the more catholic was a city’s population, the lower was the real wage in the
city. The highest wage cities of Toronto and Vancouver Were dominated by Protestants.
Ethnicity, age structures and other features of the city populations do not provide the
same contrast across the low and high wage regions.
Why would religious affiliation matter? There are at least two stories that could
explain the correlation between Catholicism and real wage levels. First, Catholics on
average had lower investments in human capital than Protestants, and on average,
Catholics in western city populations were more likely to be recent immigrants to Canada
than Protestants. Thus, it could be the case that low wage regions reflect lower human
capital endowments in the region than for high wage regions. This story would be
consistent with Coulombe’s (1999) argument that post-1945 convergence in provincial
incomes reflects the investments in education in the eastern provinces that promoted the
mobility of Maritimers to other labour markets. A human capital story is also supported
by the observation that within given cities, or regions, there is often found to be little
difference in the socio-economic status of Protestants and Catholics. Thus, high human
capital Catholics can compete in high wage regions, but the lower human capital
Catholics prefer to take advantage of the greater opportunities for them in low wage
markets. Galbraith (1985) argues a similar story when he suggests that it was only the
less successful citizens of Elgin County moved to prairies.
A second story is a discrimination story. Catholic workers may have found
limited opportunities in Protestant dominated labour markets. In Ontario, organizations
like the Orange Order and the Protestant Protective Association (whose members took an
oath not to where a Catholic if a protestant was available) raised the costs of entry into
22
the local labour markets for Catholic workers. In this story, Protestant workers move
across regions and take advantage of job opportunities open to Protestants, while Catholic
workers moved across regions to take advantage of job opportunities available to
Catholics.
Ultimately, there should be testable implications of these two stories that will
allow me to distinguish which is the more plausible story. At this point I will leave the
paper with a speculative conclusion that Canada had more than one national labour
market. The markets were spatially integrated, but socially segregated from one another.
Conclusions
I have constructed real wages series for 12 Canadian cities for the period 1901 to
1926. Our analyses of these series reveal that Canada’s regional labour markets were
integrated enough to constitute a national labour market. Real wages in Canada were
converging, but not towards being equal across regions. By 1926 a clear regional
structure to real wages in Canada was apparent and the regional structure in real wages
looks remarkably similar to the regional profile of per capita incomes for the period 1926
to 1962.
Interestingly, the low wage regions are those which had a higher proportion of
Catholics in the population. Catholics on average had lower investments in human
capital and often were more recent immigrants to Canada. Catholics also may have faced
lesser opportunities in labour markets dominated by Protestant workers. Thus,
discriminatory barriers in Ontario directed Catholics to the prairies and Maritimes. In
this sense Canada had two national labour markets that remained socially segmented.
23
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27
FIGURE 1: Intertemporal Inter-Urban Price Indexes for 11
Cities, (Toronto 1913=100)
200
180
160
TORONTO
140
VANCOUVER
EDMONTON
120
REGINA
WINNIPEG
100
HAMILTON
OTTAWA
80
MONTREAL
QUEBEC
SAINT JOHN
60
HALIFAX
40
20
0
1895
1900
1905
1910
1915
1920
1925
1930
28
FIGURE 5: Real Wages of Builders' Labourers, 1901-1926
0.8
0.7
0.6
TORONTO
VANCOUVER
1913 Toronto $/ hour
0.5
EDMONTON
REGINA
WINNIPEG
0.4
HAMILTON
OTTAWA
MONTREAL
QUEBEC
0.3
SAINT JOHN
HALIFAX
0.2
0.1
0
1895
1900
1905
1910
1915
1920
1925
1930
29
d21901
To/From St John
Halifax
Quebec
Montreal Ottawa
Toronto
Hamilton Winnipeg Regina
Calgary
Edmonton Vancouver
St John
1
0.19
0.13
0.13
0.18
0.29
0.14
0.41
0.17
0.28
0.17
0.32
Halifax
0.11
1
0.48
0.03
0.48
0.38
0.08
0.24
0.13
0.17
0.16
0.14
Quebec
0.12
0.59
1
0.17
0.8
0.32
0.23
0.36
0.32
0.17
0.13
0.21
Montreal
0.23
0.2
0.35
1
0.29
0.05
0.02
0
0.02
0.4
0.09
0.11
Ottawa
0
0.19
0.4
0
1
0.23
0.16
0.05
0.18
0
0
0
Toronto
0.14
0.32
0.24
0
0.17
1
0.18
0.57
0.23
0
0.06
0.09
Hamilton
0.02
0.01
0.15
0
0.09
0.38
1
0.15
0.1
0
0
0.19
Winnipeg
0.49
0.41
0.4
0
0.19
0.62
0.19
1
0.08
0
0.03
0.24
Regina
0.37
0.33
0.49
0
0.5
0.47
0.37
0.4
1
0
0.29
0.3
Calgary
0.21
0.25
0.23
0.27
0.13
0.07
0.16
0
0
1
0.05
0.21
Edmonton
0.28
0.58
0.23
0
0
0.23
0.1
0.04
0.02
0
1
0.13
Vancouver
0.32
0.13
0.19
0
0.14
0.31
0.3
0.2
0.15
0.12
0
1
d21926
To/From St John
Halifax
Quebec
Montreal Ottawa
Toronto
Hamilton Winnipeg Regina
Calgary
Edmonton Vancouver
St John
1
0.69
0.44
0.62
0.38
0.39
0.47
0.41
0.23
0.38
0.49
0.37
Halifax
0.63
1
0.35
0.58
0.42
0.39
0.5
0.47
0.32
0.48
0.43
0.35
Quebec
0.39
0.41
1
0.24
0.51
0.53
0.29
0.3
0.35
0.46
0.31
0.25
Montreal
0.54
0.64
0.22
1
0.34
0.41
0.47
0.58
0.35
0.53
0.38
0.51
Ottawa
0.47
0.56
0.66
0.52
1
0.83
0.57
0.56
0.7
0.67
0.58
0.53
Toronto
0.42
0.57
0.63
0.47
0.86
1
0.45
0.53
0.6
0.76
0.6
0.53
Hamilton
0.48
0.17
0.29
0.6
0.55
0.38
1
0.52
0.44
0.64
0.44
0.37
Winnipeg
0.25
0.26
0.11
0.43
0.29
0.28
0.34
1
0.47
0.51
0.39
0.31
Regina
0.06
0.13
0.02
0.24
0.22
0.34
0.21
0.34
1
0.39
0.13
0.11
Calgary
0.38
0.52
0.34
0.31
0.53
0.57
0.63
0.74
0.66
1
0.32
0.49
Edmonton
0.69
0.61
0.47
0.62
0.61
0.79
0.6
0.91
0.57
0.63
1
0.71
Vancouver
0.36
0.44
0.32
0.49
0.63
0.46
0.37
0.61
0.39
0.71
0.54
1
FIGURE 3
0-0.2
0.2-0.4
0.4-0.6
0.6-0.8
0.8-1.0
FIGURE 4: Equilibrium Real Wage Ratios for 3
Building Trades 1901 and 1926 for 11 Cities
Relative to Toronto
1.4
1.2
1
0.8
1901
1926
0.6
0.4
0.2
Va
n
co
ed uve
r
m
on
to
ca n
lg
ar
y
re
gi
W na
in
ni
p
ha eg
m
ilt
To on
ro
nt
ot o
ta
M wa
on
tre
Q al
ue
be
H c
al
if
St ax
Jo
hn
0
FIGURE 5: Catholic Proportion of Total
Populations of 12 Canadian Cities, 1911 and 1931
1.2
1
0.8
1911
0.6
1931
0.4
0.2
Halifax
StJohn
Quebec
Montreal
Ottawa
Toronto
Hamilton
Winnipeg
Regina
Calgary
Edmonton
Vancouver
0
1
2
3
4
5
6
7
8
9
10
11
12
2