The impact of progressive era labor regulations on annual earnings and employment in manufacturing in the USA, 1904–1919

We analyze the impact of the broad range of state labor regulations on employment and annual earnings in manufacturing for wage earners and salaried workers using a new panel data set for the 48 US states in 1904, 1909, 1914, and 1919. The effects of state labor regulations influenced the labor market for wage earners and had virtually no effect on the market for salaried workers. Fixed effects analysis shows that increases in a newly developed labor law index were associated with a rise in employment and a decline in earnings for wage workers. These changes imply a dominant rise in labor supply that reflected marginal benefits for workers that were higher than the marginal costs or marginal benefits to employers. After the demand and supply shifts were completed, both workers and employers ultimately experienced improved gains from trade. Under a wide range of assumptions about the earnings elasticity of demand, the results are also consistent with the regulation increasing labor demand and thus providing positive marginal benefits to employers. The effects of appropriations per gainfully employed worker were much smaller and depended on the size of the law index.