Paragraph on Composite index
Discuss the limitations in the use of index data in producing Williamson and Lindert’s results. Comment in reflection on Crafts and Flinn’s criticism. There is an on going popularity of using a statistical approach to understanding and interpreting the past. All approaches to historical study have their limitations, the same applies to quantitive history. A large amount of historical questions concern growth or decline and fluctuations over a period of time – in our case, living standards during the Industrial Revolution.
Economic historians collect chronological data or time-series in order to make interpretations, create turning points and identify key areas of change in a particular period. The numerical data in this case is converted into an index. An index number is the value of a variable shown as a percentage. This percentage is calculated as a proportion of the value which the variable holds in a base year. In simple terms, a base year is chosen and has the index value of 100 and every other year is then shown as a percentage of the original base year.
Difficulties and limitations exist with the use of index numbers as we will see below, especially with regards to selecting appropriate base years as well as making decisions about weights in forming a composite index. The article by Peter Lindert and Jeffrey Williamson ‘English Workers’ Living Standards During the Industrial Revolution: A New Look’ provides new evidence to the standard of living debate in an attempt to offer a clearer representation on workers prosperity after 1750.
New wage data and new employment weights make it possible to assess nominal earnings growth from 1755 to1851 for a number of labouring classes: farm labourers, urban workers, white collar and blue-collar workers. New cost of living data, increased by rents make it possible to assess real earnings growth. However, Lindert and Williamson’s use of index data has caused a number of criticisms from a number of economists, namely Flinn and Crafts.
Both Flinn and Crafts are reluctant to challenge the main conclusions within Lindert and Williamson’s article, however they have questioned their choice of years examined and the turning-point year of 1820. ‘Despite the improvements made by Lindert and Williamson it would be unwise to conclude that the difficulties have all been resolved. ‘1 In analysing the article, Flinn discovers that the turning-point of 1820 is inaccurate.
Lindert and Williamson’s conclusions are that real wages for many significant classes of workers for whom earnings data are available remained mostly constant between 1755 and 1820, but that thereafter the rise in real wages was rapid, amounting, for some classes of workers, to a doubling by 1850. These conclusions differ from those arrived at in Flinn’s article of 1974. Flinn found ‘the rise in real wages to have begun during the period 1810/14, a rather more moderate rise between 1820/24 and 1846/50.
‘2 The differences between their results are not greatly dissimilar; however, they do raise the question of the different approaches they each used to arrive at their conclusions. Throughout, however, Lindert and Williamson maintain that ‘material gains were even bigger after 1820 than optimists had previously claimed. ‘3 Flinn argues that Lindert and Williamson’s turning-point in 1820 arises, not so much out of real differences as out of their method of selecting data. ‘Rather than work from annual money wage series they have selected data relating to a few isolated years.
‘4 They provide statistics for the years 1797, 1808, 1810, 1815, 1819, 1827 and 1835 only, a choice, which Flinn argues, lessens their accuracy and prevents them from seeing the main problems of measurement provided by Flinn himself. He goes on to say that, the fluctuated prices in the period of the French Wars disfigured measurement and therefore cannot be ignored when analysing. In particular, the years 1812-13 represented a sharp peak of prices in both the short and the long run – years, which Lindert and Williamson failed to consider.
‘Trends taken from dates part-way up or part-way down these steep slopes can be very misleading and radically altered merely by shifting the chosen date a year or two either way. ‘5 Lindert and Williamson’s isolated years run straight into this problem, especially for reasons regarding the years 1810 and 1815 as the figures produced for 1810 and 1815 can clearly be argued as inaccurate. Yet another problem of isolated years in an age of violent short-run fluctuations is the possibility of their being poor indicators even of the medium run.
Lindert and Williamson’s ‘best-guess’ cost-of-living index in Table 4 (page 11 of their article) shows that some of the years they have selected for wage data, fall victim also to the above problem. ‘Both 1815 and 1835 turn out to be rather special years of short-run price troughs, 1815 being 9. 2% below the mean and 1835 7. 6% below its comparable mean. ‘6 The price level in the final year of 1851 cannot even be tested similarly since the cost-of-living index does not even extend to that year.
These problems would not matter according to Flinn if the purpose of their research were to analyse short-run fluctuations, however we are here concerned with secular trends, therefore their results are misleading. Lindert and Williamson’s results show that there was a peak in money wage between 1810 and 1815 and that thereafter a relatively small decrease. The price fall was the main vehicle for this peak, at least until the 1830s for raising real wages.
‘Because their new ‘best-guess’ cost-of-living index shows almost exactly the same price level for 1819 (182. 9) as it does for 1815 (182. 6), while price rises before 1810 were offset by very comparable money wage rises, they are able to conclude that the rise in real wages could not have begun until 1820. ‘7 Therefore, according to Lindert and Williamson, after prolonged wage stagnation, real wages nearly doubled between 1820 and 1850, which confirms their assumption that 1820 clearly was the turning point.
However, Flinn believes that the sharpness of the turning point is slightly blunted by what looks like a short-run hiccup between 1810 and 1819. Flinn blames the inaccuracy of their conclusion on their limitation of their wage data at this period to the years 1805, 1810, 1815 and 1819. Flinn has not challenged Lindert and Williamson’s main conclusions; he has challenged their turning point. He states, by his calculations, that the real-wage turning point was nearly a decade earlier, and that most real wage gains had been achieved before 1825.