Origins of Industrial Inequality: So Paulo, 1889-1930

Molly Ball University of California, Los Angeles mollyball@ucla.edu, Prepared for delivery at the 2009 Congress of the Latin American Studies Association Rio de Janeiro, Brazil June 11-14, 2009 Abstract: Inequality is one of the largest challenges facing Brazil today as wage gaps soar above most of the developed world. Unfortunately, due to data limitations empirical knowledge of inequality is largely limited to the post-WWII period. Thus, research on earlier inequality is often limited to a sub-study of Brazils slow development and is restricted to studies of over-simplified cross-country variations. These existing hypotheses disagree as to whether Brazils inequality outpaced other industrialized countries in the Colonial or post-Independence era. This study focuses on income inequality in the city of So Paulo. By compiling data on wages from various sources for 1898, 1912, and 1922, the paper uses skill premiums and wage differentials to track the nature of the citys labor market. Preliminary results offer a measure of inequality, potential evidence of labor market segmentation, and a comparison between immigrant and Brazilian employees. Wage differentials reveal the Old Republic to be a period of high variance.

Brazil is not only Latin Americas largest economy, but also one of the worlds largest economies. Brazils developed agricultural, manufacturing, mining and service sectors make the country an important member of the G20 industrial nations group. Unfortunately, all Brazilians do not benefit equally from the countrys growth as Brazil one of the worlds leaders in another area: inequality. While a select portion of the population enjoys the benefits of growth, a significant portion continues to live in poverty, working and living in the informal sector. The top 10% of income earners in Brazil accounts for over 44% of Brazilian consumption. In comparison, the top 10% of earners in the United States and Italy account for 30% and under 27%, respectively.1 Understandably, one of Brazils major challenges is addressing the extreme gaps between rich and poor that are larger than in many less developed countries. One of the most common measures of inequality is the Gini coefficient, which measures how far away a country is from perfect equality. If everyone held an equal portion of a certain resource, there would be perfect equality and the Gini coefficient would equal zero. In perfect inequality one person would control all of that resource, and the Gini coefficient would have a value of one. Perfect income equality is not to be expected as factors such as experience and education impact income distribution; however, many developed countries have Gini coefficients for income distribution that range between .25-.35. The United States actually has a relatively high coefficient of .45. Brazils coefficient consistently measures as one of the highest in the world. In 2005, the Gini coefficient for Brazilian household income per capita was 0.567, only one onethousandth lower than the measure for Zimbabwe.2 When did the gap between rich and poor begin to expand in Brazil and what caused this increase? Social scientists have been able to track inequality in Brazil since WWII, and we know that an increase in income concentration developed in the 1960s; however, inequality was a problem long before the 1960s. Unfortunately, we have very little data on inequality for earlier periods, so most studies related to inequality actually focus on Brazilian underdevelopment.3 Often, the studies blame Brazils Colonial origins for the countrys slow development. One variation of this argument is that existing Indigenous populations, rich soils and tropical climates encouraged the development of exploitative institutions.4 An alternative explanation blames Iberian mercantilism and commercial capitalism for prolonging the existence of inefficient labor institutions and impeding industrial capitalism and innovation.5 Although the Colonial origin theory is logically appealing, its overarching path-dependent interpretation fails to address within country variations and does not adequately address the post-Independence era changes in Latin America. A new wave of research critiques these Colonial origin arguments and indicates the

CIA world factbook. Brazil estimates from 2004, the USs from 2007 and Italys from 2000. Perhaps more unsettling is that the bottom 10% of Brazils income earners were responsible for just .9% of GDP consumption, just .2% above Haiti (2001 estimate). 2 World Bank (2003), chap 2. Most current Gini coefficients were drawn from the CIA world factbook (www.cia.gov). For alternative measures of inequality, including household income and consumption measures, see World Bank (2003), chapter 2. 3 The fact that starting in the 1950s Brazil and Latin Americas underdevelopment became the focus of dependency theorists shows that development was an issue before the 1960s. The Old Republic is particularly sparse as there are some inequality estimates for the Colonial and Imperial era in Brazil. 4 See Furtado (1954), Engerman and Sokoloff (1997) (Fall 2002), Acemoglu, Johnson and Robinson (Dec 2001), Diamond (1997) 5 Prado Jnior (1945), Lang, Mahoney and vom Hau (2006)

nineteenth and early twentieth centuries as the critical years when Latin American inequality levels jumped ahead of the rest of the Western world.6 The greatest weaknesses of the theories above are their inability to evaluate variation within countries and their reliance on aggregate statistics. My study will begin to address these shortcomings by providing comprehensive data for the city of So Paulo during the Old Republic. Using wages from several employers during the era, I will be able to follow the development of income inequality between 1889 and 1930. Although the final project will be able to address how certain factors, such as immigration, technology, education and trade openness, affected income inequality, the scope of this paper seeks to establish preliminary measures of inequality among laborers for 1898, 1912 and 1922. First the paper measures the ratio of skilled to unskilled wages for state employees for 1898, 1912 and 1922. Then it uses a sample of state, municipal and private company office personnel, servants and masons in 1898 and 1899 to determine whether wage discrepancies existed across employers and between immigrants and Brazilians. The study proceeds in the following order. Section two sets the background, describing So Paulos development during the Old Republic and setting that development within the context of existing theories of the countrys inequality and development. Section three describes the data and methodology used to determine preliminary inequality measures. Section four presents and analyzes the preliminary results: a sharp decrease in inequality between 1898 and 1912 and a more gradual increase between 1912 and 1922; some evidence of segmented labor markets; and a noticeable difference between immigrant and Brazilian workers. Section five discusses the implications and lingering questions of these results within the context of the broader project. PART 2: SO PAULOS INDUSTRIAL DEVELOPMENT The second half of the nineteenth century and the early twentieth century brought dynamic changes and substantial growth to So Paulo. A population explosion and industrial and capital market expansion attest to a rapid transformation in the city. In 1886, So Paulos population hovered just below 50,000, but by 1900 that number almost quintupled to 239,820, and by the end of the Republic in 1930 the city was home to over one million Paulistanos.7 Industrial growth accompanied this population increase as the number of industrial firms in the city grew and diversified.8 By 1920, the city had become Brazils leading industrial city, surpassing Rio de Janeiro.9 New financial institutions and capital market opportunities helped to fuel this growth. Banking became institutionalized and available credit expanded beyond the familial ties Imperial entrepreneurs had to rely on. Evidence that these new financial institutions mattered in industrialization can be found in the composition and number of firms traded on the

6 7

Coatsworth (2008), Williamson (2009) Paulistanos refer to the inhabitants of So Paulo. 8 Hanley (2005) documents 81 industrial firms in the city in 1884 and 143 in 1890. The types of firms grew from eighteen in 1873 to forty-five in 1890. 9 Versiani (1993) shows that in 1907 only 16% of Brazils industrial workers lived in the city and 17% of industrial production occurred in So Paulo. By the 1920 census, Paulistano workers made up 30.5% of Brazils industrial workforce and accounted for 33% of the countrys industrial production.

1917 Bolsa: of the 158 firms, 27% were labeled as public service, 12% as textiles, 24% as other industrials, and 1% as railroads.10 European immigration accounted for a large portion of the citys growth. After the effective abolition of the slave trade in 1850, coffee planters in the state actively sought alternative labor sources. In 1871, two leading coffee producers, Joaquim Bonifacio do Amaral and Jos Vergueiro, championed the idea of substituting European immigrants as the primary labor force for coffee cultivation. Table 1 illustrates Brazils transition to immigrant labor between 1830 and 1933.
ETHNIC GROUPS Africans Portuguese Italians Spaniards Germans Japanese Syrians and Lebanese Others 1830-1855 618000 16737 0 0 2008 0 0 0 Table 1: Immigration to Brazil, 1830-1933 1856-1883 1884-1893 1894-1903 1904-1913 0 0 0 0 116000 170621 155542 384672 100000 510533 537784 196521 0 113116 102142 224672 30000 22778 6698 33859 0 0 0 11868 0 96 7124 45803 0 65524 42820 109222 1914-1923 0 201252 86320 94779 29339 20398 20400 51493 1924-1933 0 233650 70177 52405 61723 110191 20400 164586

Source: Instituto Brasilero de Geografia e Estattistcas (IBGE)

So Paulo brought in a disproportionate share of immigrants and in 1913 one observer noted that one third of the states three million inhabitants were of Italian origin.11 Thomas Holloway estimates that as early as 1891 over half of Brazils incoming immigrant population went to So Paulo.12 The state was an attractive destination for Europeans suffering from shortages and low wages caused by Europes Great Depression of 1873. By 1891, the states Department of Agriculture, Commerce and Public Works was subsidizing whole immigrant families passage to So Paulo. Subsidized immigrants were agriculturalists who agreed to settle in the state.13 The state funded the Atlantic Passage, room and board in the immigrant receiving station, medical treatment, and transportation to the states interior upon being contracted in the lavoura. Contracts were signed in the Hospederia, which functioned both as the receiving station and as an employment agency.14 This does not mean that all subsidized immigrants lived in the interior. Although most were contracted as lavradores, the states Departamento do
10

Hanley, chaps 5 and 6. This statistic can be misleading, because although only 1% of the firms traded were railroads, they represented over 40% of the Bolsas capital, p100. 11 Brasilio de. Magalhes, O Estado de S. Paulo e o Seu Progresso na Actualidade, Rio de Janeiro: Jornal de Commercio, 1913. Chap 3 12 Thomas H. Holloway, Creating the Reserve Army? The Immigration Program of So Paulo, 1886-1930, International Migration Review. 12.2 (Summer, 1978): appendix. The states share in total immigrant reception was above 50% in twenty-nine of thirty-nine years. 13 Immigrants agreed to be repatriate within thirty days if they did not meet standards. There were exceptions to these rules. For example, 5% of contracted family members could be non-agriculturalists (AESP/C07484). Repatriation could also be covered in cases where the head of household passed away (AESP/C07485). Also, in 1912 the Boletim do Departamento Estadual do Trabalho registered that of 44,452 immigrants in the Hospederia, 7.21% were artisans and 8.45% had a profession listed as diverse (neither agriculturalist nor artisan). When Departamento published its1919 Boletim, 31.70% of the registered 15,041 immigrants coming through the Hospederia in 1918 had professions listed as either artist (209) or diverse (4,559). (p174) 14 Holloway, Immigrants, p. 45-55.

Trabalho documents that in 1911, 12.30% of individuals were actually contracted for work within the city.15 Furthermore, since contracts were renewed on an annual basis, migration to the city was possible: immigrants that passed through the Hospederia could also return to the city. An estimate of Italian immigrants reveals that between 1884 and 1904 roughly 84,857 came to the city. This number is impressive given that the citys 1900 population totaled 240,000 inhabitants: Italian immigrants alone made up over 35% of the city of So Paulos population. The share of total immigrants would have been even larger. Although the demand for coffee laborers helped supply the urban workforce in the developing capital, the characteristics of the urban labor market during this critical time period are largely unknown.16 Creating a bottom-up perspective of inequality and development in So Paulo during this time period will not only enhance our knowledge of the citys development, but will also provide a methodology that breaks from the trend of using cross-country variations to understand Latin Americas underdevelopment. This more micro-level approach is necessary to counter prevailing theories, which often overgeneralize Latin Americas economic growth. Understanding the arguments behind some of these existing theories highlights the benefits of this narrower approach. Of the broad explanations behind the regions slow development, two dominant interpretations emerge. One points to Colonial characteristics as leading to inequality extremes and slowed economic growth, and another indicates the post-Independence years and early 20th century as the time when Latin American inequality distinguished itself. The tendency to explain Latin Americas development process by its Colonial origins unites dependency theorists and more empirical social scientists. For example, Celso Furtado (1954) argues that the initial factor endowments of Brazil (semi-settled Indigenous and soil for sugar) encouraged underutilization by the Portuguese. With few Indigenous to supply the labor necessary for such export products, the Portuguese began importing slaves from Africa. Thus, producers were able to cut costs not by implementing new technology and then sharing those profits with their wage employees, but rather by cutting labor costs unnaturally with coerced labor and concentrating rents in the hands of an oligarchic few. This dependency theory argument is closely related to one by Engerman and Sokoloff (1997, 2002). These authors emphasize initial factor endowments in explaining the regions high inequality. Variances among initial Indigenous populations, soil and climate determined the heterogeneity of Colonial societies. More heterogeneous societies had less democratic Colonial institutions, thereby increasing inequality. The authors argue independence did not change in areas with high Colonial inequality: instead older institutions were replaced with newer models that continued to promote elite interests, further increasing inequality and hindering growth. Whereas Engerman and Sokoloff dedicate their study to inequality, other research considers more aspects of development. Acemoglu, et al (2001) structure their explanation for underdevelopment around extractive and settler institutions, finding a negative correlation between European settler mortality rates and GDP per capita. Brazil and most Iberian colonies had higher mortality rates and extractive settlement, and thus, slow development.

15

So Paulo, Boletim Estadual do Trabalho, 1912. The first trimestral report shows that 5,479 of the 44, 557 immigrants passing through the Hospederia in 1911 stayed in So Paulo. 16 Nathaniel Leff (1982) holds that immigrants provided the labor necessary for both agricultural and industrial expansion, which was critical for So Paulos development. Vangelistas (1991) empirical study of rural coffee workers shows that rural wages dominated the So Paulo labor market through the Old Republic.

Other scholars choose to emphasize colonizer characteristics as the determining role in a regions level of development. Caio Prado Juniors 1945 Histria Econmica do Brasil holds that Brazils slow growth was a question of timing. The Portuguese colonized Brazil during the European transition from mercantilism to capitalism and colonizers engaged in commercial capitalism rather than industrial capitalism. Slavery was a feature of this economy and as slavery slowed economic development, it was not until the effective abolition of the slave trade in 1850 that industrial infrastructure could flourish in Brazil. Lange, et al (2006) also emphasize the importance of colonizing patterns. The authors argue that while British liberal patterns led to higher levels of development, Spanish mercantilist patterns hindered development.17 These arguments that look to Colonial origins are appealing, but face heavy scrutiny from scholars that argue Latin Americas high inequality and slow development actually distinguished itself in the post-Independence era.18 Most recently, Jeffrey Williamson (2009) directly challenges Engerman and Sokoloff by demonstrating that Colonial Latin American institutions were no more unequal than their European or Asian counterparts until the latter half of the nineteenth century.19 In the case of Brazil, table 2 reproduces Williamsons inequality estimates that show dramatic inequality increases between Brazils 1872 and 1920 census.
Table 2: Brazilian Inequality Estimates Year Gini P-Gini 1870s .392 .329 1920s .597 .472 Source: Williamson (2009) Table 5 Note: Ginis from Brtola et al (2008: Table 4). Pseudo-ginis derived from Prados (2007: Table 12.1)

Coatsworth (2008) also points to post-Colonial period as the defining moment for modern Latin American inequality, but he suggests that it was the speed at which countries in Latin America modernized their institutions in the post-Independence era that defined their modern growth rates. Colonial inequality indirectly impacted this transition because countries with stronger Colonial elites (more inequality) resisted institutional modernization more. While these country-level hypotheses have value for cross-country comparisons and distinguishing large trends they fail at capturing variation within countries. In smaller nations, such as Cuba, El Salvador and Ecuador, this shortcoming may not be significant. However, in large countries with stark regional differences related to climate, geography, resources, contact with Colonial governments, etc., looking at one estimate of inequality as representative of the whole country is misleading. Brazil provides an ideal example as differences in historical experiences and current performance indicate. In their 2002 paper, Engerman and Sokoloff equate Brazils Colonial economy with large slave plantations.20 However, historically, Northeastern and Southeastern Brazil were different. Large sugar plantations did flourish early
17

Although Lange et al (2006) do not include Portuguese colonies in their comparison, their description of initial colonizer characteristics can also be applied to Portugal. 18 Google scholar citation index document over 600 citations of the Engerman and Sokoloff thesis variations and over 2,600 citations of Acemoglu, Robinson and Johnson. 19 Williamson (2009) compares pre-Industrial Gini-coefficients and extraction ratios for a series of European countries and colonies. Gini-coefficients for Brazil (1872), England and Wales (1688), France (1788) and Japan (1886) are found to be 43.3, 45, 55.9, and 39.5, respectively. Extraction ratios reveal greater variance in inequality. For the same countries ratios are 74.2%, 57.1%, 76.1% and 58.5%. 20 See page 44.

in the Northeast, but African slavery did not become a major labor force in So Paulo until the eighteenth century.21 Even at the height of slavery in So Paulo, only 28% of the states population was enslaved and the average slaveowner held seven slaves. Compared to Jamaican plantations, where the average slaveowner held twenty-five slaves, and to southern states in the US, where the slave population could reach over 50% of the population, So Paulos slavery experience was hardly a firmly-established, large-scale plantation agriculture.22 Differences between the Brazilian Northeast and Southeast are not just historical: the current national performance statistics scholars use to measure development are not uniform across Brazil. In 2005, regional differences explained between 7.8 and 9.6% of the countrys income inequality.23 In addition, Gini-coefficients for land distribution reveal a discrepancy: between 1950 and 1995, coefficients in Brazils southeastern and southern states were consistently below the national average.24 Given these examples of the differences between Brazils regions, Engerman and Sokoloffs claim that the populations of colonies suitable for cultivating sugar, such as Barbados and Brazil, came to be quickly dominated by descendents of the Africans who had been imported to work on large slave plantations is too simplistic.25 Evaluating the differences within Brazil should help refine these broad development theories. So Paulo seems to be a good starting point. Often referred to as the locomotive of Brazil, the Instituto Brasileiro de Geografia e Estatstica (IBGE) estimated that in 2002 alone, the city of So Paulo comprised 12.2% of Brazilian GDP and the states share totaled 36%. This is not to suggest that scholars have not addressed So Paulos uniqueness. A rich historiography on the subject and a whole school of thought, the So Paulo School, is largely dedicated to understanding So Paulos growth relative to the rest of Brazil.26 While scholars disagree as to whether the incoming immigrant population, capital market transformations, transportation developments, abolition, or coffee production propelled the states growth, few studies provide empirical evidence to support hypotheses. With such data constraints, fewer still attempt to measure levels of development and inequality.27 This lacuna is unfortunate because rapidly developing cities are a good place to research inequality. Providing new firm or individual-level data for So Paulo will provide the data necessary to corroborate or disprove traditional theories of Brazilian economic history. Such data will also directly follow inequality in the period when Williamson (2009) suggests Brazilian inequality outpaced Asian and European counterparts. An ideal data set for the city would reveal individual worker characteristics, such as gender, age, experience, education, position,
21

See Schwartz (1985) for data on sugar plantations in Northeastern Brazil. Monteiro (1985) documents labor forces in So Paulo during the Colonial era. 22 Data on So Paulo slavery from Luna and Klein [??], tables 5.2 and 5.8. US 1850 Census data reveal that 41.07% of South Carolinas population was white and only1.34% freed colored. 23 Francisco H.G. Ferreira, et al, Ascenso e Queda da Desigualdade de Renda no Brasil: uma atualizao para 2005 in Desigualdade de Renda no Brasil: uma anlise da queda recente, v.l. Ed. Ricardo Paes de Barros, et al. IPEA: Brasil, 2006. The above estimates derive from a Theil-L and Theil-T test, respectively. 24 Figure 2.11 in Inequality and Economic Development in Brazil: A World Bank Country Study. The World Bank: Washington D.C., 2004. 25 Engerman and Sokoloff (2002), p 51. 26 Just a few examples include Fernandes (1969), Morse (1954), Saes (1986), Dean (1969), Love (1980), Souza Martins (1967), Cano, Verisani (1993), Leff (1982), Emilia da Costa (1966), etc. 27 A wave of new economic histories has begun to aggregate firm-level data, but so far, little research includes So Paulos Old Republic. See Coatsworth and Williamson (1995), Triner (2000), Summerhill (2003), and Haber HLAFB (2005).

wage/salary, civil status, etc., in several industries in So Paulo during the Old Republic. The uses of such data would extend far beyond measures of inequality. In the future it would allow social scientists to confidently test if and how much various factors and policy decisions, such as education, immigration, technology, and trade openness, influenced inequality. PART 3: DATA AND METHODOLOGY Systematic data on wages in Brazil during the Old Republic are very limited, and data for So Paulo is especially limited.28 However, this does not necessarily mean that data do not exist. Several archives house wage data for employees from private firms as well as for state and municipal employees. Often the data appear on folhas de pagamento (payroll sheets), which provide an individuals name, profession, wage, number of hours worked and a signature. I aggregate this data into a homogenous series to create a comprehensive record of relative wages in So Paulo during the Old Republic. Currently, I have processed a sample of state, municipal and Agua e Luz employees for select years. A 1912 report published by the states Secretary of Agriculture, Commerce and Public Works Departamento do Trabalho provides additional data on state employees. Although these sources do not provide all of the ideal information, they consistently provide individual wages that I use to evaluate inequality. Analyzing changing wage differentials and skill premiums over time is one way to look at historical development of inequality. As the difference between compensation for skilled and unskilled workers increases, so does the skill premium. An increasing skill premium means that the returns to skilled labor for each unit of work are higher than the returns to unskilled labor. Thus, even if real wages are increasing over time, a rising skill premium will mean a greater concentration of wealth among skilled workers. A decrease in wage differentials and skill premiums can be caused by either a decrease in demand for high-skilled jobs or an increase in supply of high skilled workers. The former may indicate decreasing inequality, but is also potentially a sign of slow or underdevelopment. If the latter is the cause for the decrease, then a sustained decrease in wage differentials or skill premiums can be a portent of long-term growth and development. In industrializing So Paulo, the demand for high skilled workers should increase during the Old Republic, meaning that if skill premiums decreased, the supply of skilled workers increased. This paper first considers skill premiums for state employees from 1898, 1912 and 1922. Individuals employed by the states Secretary of Agriculture, Commerce and Public Works and Secretary of the Interior comprise the majority of the sample. Although the jurisdiction of these secretaries extended to the state as a whole, only employees within the city of So Paulo are included. This excludes departments such as the ncleos coloniais and Inspetoria de Immigrao in Santos. It is impossible to include all state employees for each given year because only certain folhas de pagamento were preserved. For example, various caixas at the Arquivo do Estado de So Paulo from the Secretria de Agricultura for the year 1922 only contain labeled folders without any accompanying documents.29 While folhas de pagamento provide the data for the years 1898 and 1922, data on employees for 1912 are taken from a study conducted by the Departamento do Trabalho. Even this government study did not produce a
28

Williamson (2009) and Maddison (2005) offer aggregated measures and de Melo et al (2003) focus on Rio de Janeiro. 29 These boxes arrived at the AESP without the documents. The folders give the subject matter of what they are supposed to contain, and include several folhas de pagamento.

complete record of employees. As only certain departments provided the requested information, most data are used. The study does exclude information from departments operating outside of the city. It also measures premiums with and without Agua e Esgoto employees, as no data for those employees in 1898 and 1922 are yet available. The 1912 report does not contain individual names, but it does have specific salary and wage information and also provides the civil statuses, schooling levels and nationalities of employees. The skill premium is constructed as follows: the average pay is calculated for each of the years under consideration, and those workers earning above the average pay are considered skilled, while those earning below the average pay are considered unskilled. Then, the average wage of the top half of the sample is divided by the average wage of the bottom half. This provides a basic skill premium. The same procedure is repeated for the top 25% of wage earners as compared to the bottom 75% and the top 10% of earners compared to the bottom 90%. The ratio of workers earning more than the average as compared to those earning less is also considered. As the premiums yield a coefficient, I can compare the skill premium estimates across the three years to estimate wage inequality during the Old Republic. Once the skill premium is established the study considers other measures of inequality, because the ratio may not be uniform across the entire labor market. Although standard trade theory holds that labor mobility will equalize wages across sectors, meaning a mason employed by one company should make the same wage as a mason in another company, studies on modern Latin America reveal restrained labor mobility.30 Why should we expect mobility in the industrializing era to behave differently? In order to test for segmented labor markets, I compare the wages between state, municipal and Agua e Luz employees in the years 1898 and 1899.31 Three positions: lower level office personnel, cleaning employees and servants, and masons serve as comparison points.32 In order to accurately compare two individuals wages, one must also consider their relative experience and education. For example, skills acquired through on the job training or a company with low turnover may account for higher compensation in one company. Although further research will consider such employee and employer characteristics, these considerations lie outside of the scope of this paper. Finally the study uses the data to evaluate whether wage differentials existed between immigrants and nationals. Some scholars argue that immigrants were more skilled than nationals and dominated skilled positions (Versiani 1993). Although this argument is partially supported by relative literacy rates (table 3), Michael Hall and Nathaniel Leff hold that the immigrant skill level was not significantly higher than that of Brazilians.33
TABLE 3: LITERACY RATES Year Ages Rate (%) 1890 +10 86.7 (92.3, 43.2)* 1910 +10 92.3 (95.0, 69.5)* 1890 +7 14.8 1920 +10 30.0

United States Brazil

30 31

Attanasio, et al (2003). Attanasio cites Hanson and Harrison (1999) as finding similar results for Mexico. Agua e Luz was one of various companies that provided energy for the city of So Paulo in the early years of the Old Republic. By 1909, the So Paulo Tramway and Power Co. had absorbed the firm. 32 Although there are only six masons in the current sample, this profession is still chosen because masons wages are typically used in international labor market comparisons. 33 Hall (1969). Leff (1982) cites that for those immigrants paying for passage, most chose to go to the United States and Argentina, chapter 4.

Argentina

1895 +6 45.6 1925 +10 73.0 Italy 1901 62.0 * Note: parenthesis provide white and black literacy rates, respectively Source: Engerman, Haber and Sokoloff (2000). Italian literacy rate from David Vincent Literacy and Popular Culture (1993), table 2.2

The effect of immigrants on wages, skill premiums, and inequality in So Paulo will largely depend on immigrants skill levels relative to nationals skill levels.34 Although the immigrants impact on skill premiums will be considered in the future, this paper merely evaluates wage differentials between immigrants and nationals.35 A proxy for immigrant is determined by the names on the folhas de pagamento. This method underestimates immigration as it misses Portuguese immigrants, who were 10% of immigrants coming to So Paulo between 1887 and 1900. Still, it provides a best estimate for immigrant share in the late nineteenth and early twentieth century.36 As table 1 shows, most European immigration to Brazil occurred after 1884. Thus an individual with a foreign name and surname is labeled as an immigrant.37 To test for a wage differential, I use the same sample of office personnel, servants and masons for 1898/1899 used to test for wage variation across employers. I compare the average wages and share of immigrants versus nationals in each of the three positions. Marked variation in either of these two measures may indicate immigrants role in the labor market. PART 4: PRELIMINARY RESULTS It is important to reiterate that results are preliminary and should be treated as such. The creation of a more extensive wage series that includes more years and employers and considers more worker characteristics will allow for a more confident measure of inequality and for a greater understanding of the causes of inequality. Skill Premiums In evaluating the changing skill premiums among state employees over the three years considered, two trends stand out. The most noticeable is the drastic decrease in the skill premium between 1898 and 1912. If we consider the top half of wage earners compared to the bottom half, the skill premium in 1898 is five times that of 1912 (excluding Agua e Esgoto workers). Between 1912 and 1922, there is an increase in the skill premium, but the 1922 premium is still a mere 30% of the 1898 premium. The decrease in the premium between the top quarter and top decile of earners is not nearly as pronounced, but the premium is still noticeably smaller (see Table 4 and Figure 1)
Table 4: So Paulo State Employee Wage Data, 1898, 1912, 1922 Avg. Nabove/ Skill Premium Year N wage nbelow 50:50 25:75 10:90 1898 *321 3.203 1.972 5.9631 3.2596 4.1247 1912 (w/A & E) 995 4.205 .610 .9404 1.4021 1.7197 1912 (w/o A & E) 151 4.778 2.683 1.1575 .8599 1.4335
34 35

Avalos and Savvides (2003) and Borjas (1994). When the immigrant population is unskilled relative to the native population, they will dominate unskilled positions at lower wages, driving up the skill premium. Where immigrants are more skilled, they will offer a greater supply of skilled workers, driving down the skill premium. 36 Holloway, Immigrants, 43. 37 There are subtle differences in spelling that distinguish Italian and Spanish names from Portuguese names. For example: Italian and Spanish use z instead of s and Paul is spelt Paulo in Portuguese and Paolo in Italian.

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1922 484 5.172 .767 1.8667 1.7077 1.8834 Source: 1898 data available from the AESP, C04310 and C06450. 1912 data published in the 1912 Boletim do Departamento Estadual do Trabalho. 1922 available from the AESP, C06749, C06750 and C06888. Note: The 1898 data includes 5 individuals without wages; therefore, they are excluded from the calculations.

The second notable characteristic regards the skill premiums in relation to one another and what portion of wage earners experienced the greatest variation. The narrowing of the difference between the three different skill premiums suggests that more of the wage disparity in 1922 could be explained by differences between the top 10% and bottom 90% than in 1898.
Figure 1

This change is significant, because while skill premiums decreased on average, it seems that the top income earners received an additional premium.38 Investigating this trend further will be an important step to in the future, because it can help indicate what section of wage earners were impacted by changes in So Paulos immigrant composition, educational and trade opportunities. The data that compare wages for municipal, state and Agua e Luz employees in 1898 and 1899 produce the results shown in table 5. Although wages among unskilled workers seem to be relatively consistent, there is a noticeable discrepancy in wages of office personnel. State employees received a wage that equaled less than 70% of municipal employees wages and less than 85% of Agua e Luz personnel.
Table 5: Comparative Wages in So Paulo, 1898 and 1899 Office personnel Masons Servants Employer Avg pay (R$) n Avg pay (R$) n Avg pay (R$) n Municipal 12.444 10 3.101 5 0 State 8.562 28 3.333 23 6.000 1 Agua e Luz 10.094 25 3.248 70 5.219 16 Sources: Data on municipal employees from the AMWL, Assuntos Diversos, 0754. State employee data from the AESP, C04310. Agua e Luz data at the FPHESP, Cia. Agua e Luz, pasta 11.
38

More recent skill premiums in Brazil have a similar characteristic. Pavcnik, et al (Oct 2002) found that while skill premiums on primary and secondary education decreased during the countrys trade liberalization, premiums to tertiary education increased.

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It is possible that worker characteristics explain the wage difference among these skilled individuals, but it is also possible that labor market segmentation at least partially explains the variation. Scholars have often explained such segmentation as a result of industrialists trying to stifle labor organization and unrest. However, labor was unable to organize across sectors in So Paulo and wide variation in the standard workday suggests that citys labor market was far from homogenous.39 Another possible explanation for segmented markets is that capitalintensive firms outsourced to labor-intensive firms. A growing informal sector and barriers to information, such as weak labor unions and low literacy rates, are more probable explanations for the recorded wage differences in So Paulos Old Republic.40 The same data used to track segmented markets are used to evaluate discrimination. This issue has been of great interest to historians studying the presence of racial prejudice and looking to understand Brazils racial dynamic in the years following abolition. This preoccupation is warranted given the policy of whitening in Brazil and the lack of statistical data on race for the years in question.41 Firm-level data has allowed scholars to test for discrimination in the last decade of the Old Republic. The results are surprising: 1) no significant discrimination against blacks; 2) significant within group variation among blacks (those individuals labeled pardo, brown, having more opportunities than those described as preto, black); and 3) significant discrimination against Brazilians, regardless of race.42 Further evidence of immigrant preference comes from explicit complaints by Brazilians to employers about a preference for skilled immigrant workers and Vargas-era legislation that implies employers discriminated against nationals. 43 The data from 1898 and 1899 reveal a different result from the firm-level data of the 1920s. As table 6 shows, workers with names of immigrant origin are overrepresented in the unskilled, servant level positions and are underrepresented in the lower-level office personnel positions. Furthermore, immigrant average wages as a whole and for individuals in lower-level office positions fell below wages for nationals.
Table 6: Immigrant National Employment Differentials: 1898, 1899 Immigrant National N share avg. Wage n share avg. Wage Total 162 24.6% 5.196 497 75.4% 6.227 Office 9 15.3% 6.708 50 84.7% 10.537 Servant 50 51.0% 3.203 48 49.0% 3.234
39

Reich, et al (1973) explain how labor unrest can lead to labor market segmentation. Carone (1977), Fausto (1976) and Pinheiro and Hall (1979) all document that with the exception of the 1917-1920 strikes, there was littlte effective labor organization in So Paulo until the Vargas era. In addition, the 1912 Boletim do Departamento do Estado do Trabalho records extreme variance in the workday: construction, eight hour workday; textile, ten to twelve hour workday; transportation, six to eleven hour workday; hat factory, nine hour workday; etc. 40 Even if labor periodicals published information, in a labor force where the majority of individuals were illiterate, print effectiveness would be significantly diminished. 41 After 1872, race was not included on the national census until 1930. Similarly, So Paulo government documents only distinguish immigrant status. For more on whitening and its historical origins, see Skidmore (1974). A specific example is Japanese immigration. When immigration started in 1908, this group was seen as acceptable as they were often described as the white race of Asia, Lesser (1999). 42 See Andrews study of Jafet and Light firms for within group variation (1991). See Melos Brahma data for evidence on immigrant preference (2003). 43 Andrews (1991). Doliveira (1933) argues against European superiority in the labor force. Weinstein (1996) documents that the 2/3 Law of 1934 required 2/3 of the workforce to be Brazilian.

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Sources: AMWL, Assuntos Diversos, 0754; AESP, C04310; FPHESP, Cia. Agua e Luz, pasta 11

This result is not necessarily surprising, as the characteristics of the incoming immigrant population changed over the Old Republic. With the 1903 Prinetti Decree Italians could not accept subsidized passage to So Paulo, thus those Italians coming to Brazil after 1903 were more likely to have social networks, capital and skills than their earlier countrymen. Another shift came with World War I when the share of unskilled Northeastern Brazilian migrants increased to So Paulo. With so many changes in the states labor market, it is difficult to predict how wages were affected, but rural skill premium evidence records an increase in the maximum and minimum wage gap beginning in 1914.44 The skill premiums reported in table 4 suggest that effects in the urban market may have begun earlier, in 1912. Data on immigrant literacy rates from the Hospederia confirm an increase in the number of educated immigrants. In 1911, only 21.19% of the 44,452 immigrants passing through the Hospederia were literate. Although this rate is artificially low because young children were also included in the calculation, the fact that by 1918, 62.89% (9,459) of the 15,041 immigrants coming through the Hospederia were literate signifies a significant change in the immigrant population.45 PART 5: IMPLICATIONS AND LINGERING QUESTIONS Jeffrey Williamson (2009) suggests that Brazilian inequality outpaced other industrializing nations in the period between 1872 and 1920, but the income inequality results for So Paulo above suggest that the process was much more complex. Not only did skill premiums vary over time, but wages also changed across employers and depending on whether a worker was an immigrant or Brazilian. The increase in the relative importance of the top decile of earners in explaining the skill premium also signals an important shift. Interpreting these results, however, is difficult without a larger sample size and information related to market characteristics (such as trade barriers and implemented technology): any number of variables could cause these shifts in inequality. Did the poor public school system fail to provide skilled laborers after WWI decreased the supply of European laborers? Did technology improvements lead to higher competition for skilled workers and thus higher skill premiums? Did protected industries keep wages artificially high? In order to answer these and other questions the next step in this study is to expand the current data sample to include more sectors and years and to consider more variables. Probable data sources for wages include more data on the existing employers and data on employees in textile firms, railroads and breweries. Future tests will also consider the influence of certain worker characteristics, such as literacy and nationality, on skill premiums. The scope of this project will create a detailed understanding of income inequality in So Paulo during the Old Republic, but future projects can expand the sample geographically and beyond 1930. Such evidence would allow social scientists to readdress the Brazilian and Latin American development experience armed with an appropriate data series.

44

Vangelista, chap 4. Although this gap increases for the rural sectors, Versiani (1993) shows urban and rural nominal wages in So Paulo in 1920 only differed by 30% and that wages in the two regions followed similar patterns. Thus, an increase in rural wage differentials probably also signified and increase in the urban sphere. 45 Boletim do Departamento Estadual do Trabalho, 1912 and 1918. The literacy rate increase might be because by 1918, Japanese were the largest immigrant group, registering 5,601 (37.24%) of immigrants.

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APPENDIX A: CALCULATING THE ITALIAN POPULATION IN SO PAULO IN 1904 Over one million Italians immigrated to Brazil between 1884 and 1904 and the majority came to So Paulo. To follow Italian rather than total immigrant migration requires estimating what share of the total incoming immigrant population was Italian. To determine this figure, I estimate the number of total Italian immigrants coming to So Paulo during this time period as the share of total immigration to the state. SPiI=(0.62*SPiI)t1894-1904 The number of Italian immigrants coming into Brazil between 1894 and 1904 totaled 1,048,317. The number of immigrants coming into the state of So Paulo in the same time period totaled 1,054,278. A lowerbound estimate of the Italian immigrant share of So Paulo immigration during this time period is 62%. This percentage is derived from immigrant land ownership data compiled by Thomas Holloway. The number of Italian immigrant owners divided by the total number of immigrant landowners yields this percentage. The estimate is a lowerbound because the Portuguese share of landowners is probably disproportionately high. Given these considerations, a very rough estimate of the number of Italian immigrants in the state of So Paulo between 1894 and 1904 is 653,652 immigrants.46 Although most of these immigrants were involved in coffee cultivation in the states interior, a significant number also had to migrate to the city (either directly from Europe or from So Paulos interior). Looking at the available options for immigrants helps determine the number of Italians in the city of So Paulo. Colonos were only bound by one-year contracts, at the years end, an Italian immigrant family could: 1) extend its colono contract on the same farm 2) return to Europe 3) move to the coffee frontier and buy their own land or 4) migrate to the burgeoning city of So Paulo. Poor working conditions inspired many immigrants to repatriate. Data on these individuals is very limited. The state of So Paulo recorded little beyond the total number of immigrants leaving the country in a year starting in 1900. Assuming Italian immigrants were no more likely to return than other immigrants, the number of recorded departures between 1900 and 1904 totaled 164,542, therefore at least 102,000 Italians returned to Italy (62% of the total). But, this estimate only covers the last four years of the twenty-year time period. Since no earlier data exist, multiplying this number by five provides an estimate of 510,000 for the number of Italians returning to Italy over the twenty-year period. This estimate is biased upward because few immigrants at the beginning of the time period would have accumulated sufficient funds to return to Europe. Becoming a landowner was an attractive option for obvious reasons, but the likelihood of an immigrant obtaining this level of success was unlikely. Thomas Holloway has tracked ownership of So Paulo properties by nationality for 1905, finding 5,239 properties owned by Italians. Assuming that colono families attended to these properties, the number of immigrants who became landowners or lived on their familys land totaled 26,195.47 This estimate is also
46

The data for these calculations are found in Holloway (1978). Thomas Holloway estimates that during this approximate time period, a mere 310,000 workers were needed for coffee cultivation. Even if only half of the incoming immigrant population was of full working capacity, that still leaves a surplus of almost 17,000 Italian immigrants. 47 This value was estimated by multiplying the total Italian owned rural properties by five as that was the average Italian family size.

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biased upward because moving a whole family to the interior would have been cost prohibitive. Passenger freight rates equaled twelve weeks pay, and passage for a five-person family would have been difficult to accumulate.48 Thus far, we have accounted for 78% of Italian immigrants, but what of the remaining 143,600? How many moved to the city of So Paulo and how many remained in areas located near their original contracts? The share of immigrants contracted in the traditional areas dropped from 98% to around 90% between 1893 and 1904. Assuming that the previous ten years hovered around 98%, the average share of immigrants remaining in traditional regions was 5%. This implies that roughly 32,600 immigrants remained on or near their original contracted lands. Summing these numbers and subtracting them from the estimate of Italian immigrants to the state produces a lower bound estimate of the number of Italians moving to the city of So Paulo: roughly 84,857. This number is impressive given that the citys 1900 population totaled 240,000 inhabitants. This means that Italian immigrants made up over 35% of the city of So Paulos population. This estimate corroborates Magalhes 1913 statement that roughly one third of the states population was Italian.49

48 49

Summerhill, 74. Magalhes, chap 3.

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