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

2000

2500

1870

1872

1874

1876

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1900

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1912

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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4

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1873

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Imm

igra

tion

rate

(‰)

0

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1870 1873 1876 1879 1882 1885 1888 1891 1894 1897 1900 1903 1906 1909 1912

Emig

ratio

n ra

te (‰

)

Denmark Norway Sweden

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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Une

mpl

oym

ent r

ate

(%)

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Imm

igra

tion

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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-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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