Joshua L. Rosenbloom

English

Research Papers in Economics

Reflections on 
“Lifting the Curse of Dimensionality: 
Measures of the Labor Legislation Climate in the States  
During the Progressive Era” 
 
Prepared for a Symposium in Labor History 
Joshua L. Rosenbloom 
University of Kansas and NBER 
 
19 September 2008 
 
Fishback, Holmes and Allen begin their article “Lifting the Curse of Dimensionality: 
Measures of the Labor Legislation Climate in the States During the Progressive Era,” by 
observing that developing summary measures of the policy climate is “one of the most 
difficult problems in the social sciences.”  The balance of the paper is an effort to 
construct such measures for labor legislation in the United States from 1899-1924, an era 
of substantial changes in the legal context of labor market transactions. Fishback, Holmes 
and Allen (hereafter F-H-A) describe the construction of four aggregate measures of the 
amount of labor legislation in effect in each U.S. state and document the extent of 
correlation among these measures at different points in time as well as the similarities and 
differences in the course of their evolution over time.   
   2
F-H-A make a convincing case that the indexes they have calculated capture an 
interesting dimension of variation across states, but precisely what is being measured and 
how we should interpret it remains at this point unresolved.  It is helpful to start by 
reviewing in more detail what we learn from F-H-A’s indexes.   
•  First, it is apparent that the extent of labor legislation varied widely across states 
in the early 20
th century.  Their Employment Share Weighted Index of labor 
legislation for 1895 ranged from a high of 0.467 in New Jersey, implying that on 
average approximately half of all workers in the state were covered by legislation 
in each of the nineteen categories of legislation they consider, to a low of 0.013 in 
Mississippi, where essentially no workers were covered by any legislation. 
•  Second, the variations across states are similar no matter whether one looks at the 
numbers of workers covered, the number of pages devoted to describing this 
legislation, or the number of dollars spent per worker to enforce this legislation. 
•  Third, regardless of which measure of labor legislation one adopts there was a 
generally positive trend in the measure over time, and the different measures 
suggest similar rankings in the magnitude of changes across different states. 
All of this is quite interesting, but what, exactly, is being measured by the quantity of 
labor legislation?   
 
Theory does not provide much guidance about how to interpret the presence of more 
labor legislation.  One view of market regulations sees them arising out of competition of 
different interest groups—e.g., labor and employers—that seek to use the political 
process to alter the outcomes of competitive markets in ways that benefit their interests at   3
the expense of other groups in society.  In this view, more labor legislation could be 
interpreted as reflecting both the greater strength of labor vis-à-vis other interests and a 
more favorable climate for labor.   
 
On the other hand, according to the public interest theory of regulation, regulations are 
introduced primarily to solve problems of imperfect information, incomplete markets or 
public goods.  In other words, regulation reflects an effort to solve problems that cause 
outcomes to deviate from efficient outcomes that would be achieved in a perfectly 
competitive market.  The latter interpretation implies that higher levels of labor 
regulation reflect the increasing complexity of labor market transactions and the growing 
deviation of markets from the ideal of perfect competition.  Such an interpretation makes 
it difficult to interpret increasing legislation as reflecting anything about the relative 
strength of labor vis-à-vis other interests.  Rather, it suggests that the rising level of 
regulation reflects the increasing complexity of the modern economy. 
 
An excellent illustration of this complexity is provided by Fishback and Kantor’s (2000) 
careful analysis of the history of workers’ compensation legislation.  The rapid adoption 
of workers’ compensation laws between 1910 and 1920 they argue reflected the fact that 
public intervention came to be seen as beneficial both by employers and by workers.  
Workers paid for most of the increase in post-accident benefits though lower real wages.  
Meanwhile, the new regime reduced employer uncertainty by removing the risk of 
potentially large liabilities if they were found to be at fault.  The rapid adoption of 
workers’ compensation laws reflected not so much changes in the balance of power of   4
different interest groups but shifts in the legal environment that altered the costs of the 
prevailing negligence regime.  “The adoption of workers’ compensation was not,” 
Fishback and Kantor (2000, p. 88) write, “the result of employers’ or workers ‘capturing’ 
the legislation to secure benefits at the expense of the other.  Nor can its adoption simply 
be attributed to the success of Progressive Era social reformers demanding protective 
legislation.” 
 
Without understanding the dynamics underlying the adoption of the various labor 
regulations reflected in the different indexes that F-H-A have developed it is thus difficult 
to know how to interpret variations in these measures.  That is we need to understand 
what is going on within states that leads them to either adopt or not adopt legislation.  
Such a perspective suggests an analogy to models of the diffusion of innovations.  
Walker (1969) draw precisely such an analogy in his study of the pace of state adoption 
of broad range of regulation.  Interestingly, Walker’s innovation score, constructed on the 
basis of the timing of adoption of each of 88 different legislative innovations within each 
state looks surprisingly similar to the F-H-A indexes constructed at the beginning of the 
twentieth century (see Figure 1).  Thus it appears that differences in the quantity of labor 
legislation are one manifestation of a broader pattern of cross-state variation in the 
propensity to legislate. 
 
F-H-A seek in their paper to shed light on possible explanations for these variations 
through an examination of the correlates of cross-state variation in labor climate.  But I 
am skeptical about the possibility that we can learn a great deal from such an exercise   5
without making stronger assumptions about the underlying mechanisms that have given 
rise to the data.  The cross-section regression framework is appropriate only if we think 
that the relative levels of labor legislation reflect at least approximately an equilibrium 
situation.  This is certainly possible, but given the potential lags in political response to 
conditions it is equally plausible that the cross-section variation we are observing reflects 
a disequilibrium situation to which states are slowly responding.  This may be on reason 
that so few of the effects reported in Table 5 are statistically distinguishable from zero, 
and why in Table 6 changes in measures of labor legislation are negatively and 
significantly correlated with their starting values. 
 
Before going further down the route of attempting to “account” for across-state variations 
in labor legislation it may be more fruitful to dig more deeply into the characteristics of 
that variation.  One promising approach is to examine the data at a higher degree of 
disaggregation.  F-H-A’s use of nonparametric spatial coordinates to locate states in a 
two dimensional policy space suggests the value of such an approach.  While 
COORDINATE ONE corresponds relatively closely with the pattern of variation of the 
univariate indexes, COORDINATE TWO captures a pattern of variation in legislation 
more closely associated with mining states.  More generally this suggests that we may 
learn more about the growing level of regulation by understanding the connections 
between different strands of labor market regulation.  Looking more closely at what types 
of regulation tended to go together, and what patterns of timing can be observed across 
states would thus seem to offer interesting avenues of exploration.    
   6
Similarly it would be interesting to know more about how different regulatory 
innovations diffused across states.  Were some states consistently leaders, while others 
were consistently followers?  Or did innovations emerge from a variety of different 
sources?   Once a new form of regulation was introduced, how were time lags in adoption 
affected by state characteristics?  Did these lags get longer or shorter over time?  Finally, 
it would be worth thinking about whether, as the level of regulation rose, regulatory 
environments became more or less similar across states.  
 
Another, and more ambitious line of investigation would be to consider how labor 
legislation affected labor market outcomes.  The challenge here, is the simultaneous 
endogeneity of regulation and its consequences.  Interest in regulation presumably arose 
because of certain labor market conditions—either an effort to shift the terms of 
exchange in favor of one party or the other, or to alleviate market imperfections and 
enhance efficiency.   Given the effort and expense that went into the development and 
enforcement of the array of regulation that F-H-A summarize one would hope that they in 
fact did have an appreciable impact on the labor market (though these effects may not 
have always been those the proponents of regulation hoped to achieve).  It seems 
reasonable, in this light, that we should be able to detect the impact of regulations either 
individual or in aggregate on labor market outcomes such as employment, wages, profits, 
migration, and productivity. 
 
The challenge (possibly insurmountable) with attempting to discern the impact of 
different regulatory environments is the problem of constructing an appropriate   7
counterfactual.  If, as seems likely, differences in the regulatory environment were in part 
a response to differences in the circumstances of different states, then we cannot simply 
compare outcomes across different regulator environments.  Identifying truly random 
variations in the regulatory environment will be (at best) quite challenging. 
 
In his Presidential address to the Economic History Association, Moses Abramovitz 
(1993, pp. 218-19) described himself as “…just that sort of contrary character who gets 
as much satisfaction from contemplating how much we do not know as he does from 
thinking about how much we do.”  Such a perspective may not be common in the general 
public, but I suspect that many historians and economists would identify with 
Abramovitz’s in preferring good questions to good answers.  In their analysis of the 
climate of state labor market regulation in the Progressive era F-H-A are to be 
commended both for helping us to see the answer to the question of how much regulation 
there was, and for raising many as yet unanswered questions about how to interpret the 
facts that they have helped to illuminate.  Like all good scholarship, what they find has 
posed more questions than it answers.  But by providing a basis to begin to delineate 
these questions and suggesting possible approaches to them their paper offers the promise 
of new understanding yet to come. 
 
  
Figure 1: Comparison of Walker Composite Innovation Index and Fishback, Holmes, Allen Labor Regulation IndexReferences 
Abramovitz, Moses (1993).  “The Search for the Sources of Growth: Areas of Ignorance, 
Old and New.”  Journal of Economic History 53, no. 2: 217-43. 
Fishback, Price V. and Shawn Everett Kantor (2000).  A Prelude to the Welfare State: 
The Origins of Workers’ Compensation.  Chicago: University of Chicago Press. 
Walker, Jack L. (1969).  “The Diffusion of Innovations among the American States.”  
American Political Science Review, 63,no. 3: 880-899. 
 

Reflections on“Lifting the Curse of Dimensionality: Measures of the Labor Legislation Climate in the States During the Progressive Era”

http://www2.ku.edu/~kuwpaper/2008Papers/200807.pdf

Reflections on“Lifting the Curse of Dimensionality: Measures of the Labor Legislation Climate in the States During the Progressive Era”

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Research Papers in Economics