The labour scarcity paradox reconsidered: a simple growth theoretic explanation

Abstract

By calibrating a Solow model augmented by natural resources, this paper offers a simple explanation of the labor scarcity paradox during the process of America's catching up with Britain, which static models have difficulties in accounting for so far.

Notes

¹ James and Skinner (1985), p. 517.

² Habakkuk (1962), p. 96−97.

³ It may seem odd that they happened to be exactly the same. Yet it is a good baseline case until we find evidence suggesting otherwise.

⁴ James and Skinner (1985), p. 527.

⁵ Maddison (1982), Table 3.3, p. 48.

⁶ I tried running regressions using data from Maddison (1982) for Great Britain, but the parameter estimates don't make much sense with α = 0.66, and β = 1.2. One reason is that the sample size is too small (every ten years from 1820 to 1913).

⁷ Habakkuk (1962), p. 111.

⁸ In 1870, 50% of the total employment was in the agricultural sector in America, while the British counterpart was only 22.7%. This gap would have been larger in 1850. Source: Maddison (1982), Table C5, p. 205.

⁹ This is a sensible assumption if they were using the same technology.

¹⁰ I take the arithmetic average of the US population growth rates of 1.2% (during 1700−1820) and 1.8% (during 1820−1979). Source: Maddison (1982, Table 3.4, p. 49).

¹¹ I take the arithmetic average of the British population growth rates of 0.7% (during 1700−1820) and 0.6% (during 1820−1979). Source: Maddison (1982, Table 3.4, p. 49).

¹² Unfortunately no direct data for 1850 is available.

¹³ I use the above data of America's labour force in 1849, Britain's labour force in 1851, and the population growth rates during that period for both countries for extrapolations.

¹⁴ This is calculated from Maddison (1982, Table D13, p. 232), which indicates the US capital stocks as 6.52 and 10.36 in 1870 and 1880, respectively with 1950 = 100.

¹⁵ This is calculated from Maddison (1982, Table D12, p. 231), which indicates the British capital stocks as 16.13 and 31.95 in 1830 and 1860, respectively with 1950 = 100.

¹⁶ I take arithmetic average of real interest rates between 1841−1850 and 1851−1860. Source: James and Skinner (1985, p. 539).

¹⁷ James and Skinner (1985, p. 537).

¹⁸ Both US and Britain data are for 1871−1880 as ‘ratio of gross fixed nonresidential investment to GDP at current market price from Maddison (1985), Table 2.3, p. 40.

¹⁹ Habakkuk (1962), p. 4.