Three essays on the relationship between the economy and the living standards Inaugural-Dissertation zur Erlangung des Grades Doctor oeconomiae publicae (Dr. oec. publ.) an der Ludwig-Maximilians-Universita¨t Mu¨nchen 2007 vorgelegt von Michela Coppola Referent: Prof. John Komlos, Ph. D. Korreferent: Prof. Dr. Joachim Winter Promotionabschlussberatung 18. Juli 2007 to my mother for making me eager to learn more to my father for teaching me with his example to work hard to Hanjo and Sarah for having given a meaning to this effort Acknowledgements The completion of this thesis would have been much more difficult, if not impossible, without the support, suggestions, and encouragements of many people. First and foremost, I would like to thank my supervisor, Professor John Komlos whose excellent academic guidance, very helpful advice and contin- uous support helped me in all the stages of my work. I also thank him for providing me the data on the British German Legion that were used to write the second chapter of this thesis. I would also like to thank Professor Joachim Winter and Dr. Sascha Becker for having patiently answered my (often too) long emails, giving me useful comments and suggestions. I am also grateful to Professor Winter and to Professor Hillinger for agreeing to serve as second and third examiners of my thesis. Comments on my work by Professors J¨org Baten, Brian A’Hearn, Stephen Jenkins, Michael Haines,Scott Eddie were greatly appreciated. Participants at the doctoral Seminar at the Chair Economic History and at the research workshop “Empirical Economics” at the University of Munich have been important source of feedback and encouragement. Furthermore, I would like to thank my colleagues at the Munich Graduate 2 School of Economics not only for the many stimulating discussions, but also for the good time I had with them. Without them, writing this dissertation would have been much more difficult and much less fun. In particular, I thank Francesco Cinnirella and my officemates Romain Baeriswyl, Ludek Kolecek A and my personal LT X assistant Christian Mugele. E Financial support from the Deutsche Forschungsgemeinschaft (DFG), and a research grant from the Economic History Association are also gratefully acknowledged. I would also like to thank Professors Gianni Toniolo and Giovanni Vecchi, the supervisors of my master thesis at the University of Rome “Tor Vergata”, whose brilliant lectures and intellectual sharpness turned on my interest for economic research. Finally, I would like to thank my family for their support during all these years. My special, final thank belongs to Hanjo K¨ohler and his family, whose love, support and cheerfulness enabled me to go through the good and the bad moments, and to complete this work. Munich, February 2006 3 Contents Introduction i 1 Biological living standards and mortality in Central Italy at the beginning of the 19th century 1 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 The data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.3 Regression results . . . . . . . . . . . . . . . . . . . . . . . . . 13 1.3.1 Cross-sectional effects . . . . . . . . . . . . . . . . . . . 13 1.3.2 Time trends . . . . . . . . . . . . . . . . . . . . . . . . 25 1.3.3 Sensitivity analysis . . . . . . . . . . . . . . . . . . . . 30 1.4 Mortality analysis . . . . . . . . . . . . . . . . . . . . . . . . . 31 1.4.1 Theoretical framework . . . . . . . . . . . . . . . . . . 32 1.4.2 Estimation results . . . . . . . . . . . . . . . . . . . . . 37 1.5 Summary and conclusions . . . . . . . . . . . . . . . . . . . . 42 2 The biological standard of living in Germany before unifica- 4 tion 1815 - 1840 45 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.2 Living standards in Germany in the first half of the 19th cen- tury: a quick overview . . . . . . . . . . . . . . . . . . . . . . 48 2.3 Materials and methods . . . . . . . . . . . . . . . . . . . . . . 52 2.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.4.1 Cross sectional results and height trends . . . . . . . . 62 2.4.2 Agrarian reforms and living standards in Prussia . . . 72 2.5 Summary and conclusions . . . . . . . . . . . . . . . . . . . . 78 3 Obesity and the labour market in Italy, 2001 − 2003 81 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 3.2 Statistical issues . . . . . . . . . . . . . . . . . . . . . . . . . . 85 3.3 Data, variables and estimation strategy . . . . . . . . . . . . . 90 3.4 Probit results . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 3.5 Instrumental variable approach . . . . . . . . . . . . . . . . . 104 3.5.1 The instruments . . . . . . . . . . . . . . . . . . . . . 104 3.5.2 Instrumental variables with binary dependent variables 106 3.6 Robustness check . . . . . . . . . . . . . . . . . . . . . . . . . 119 3.7 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . 126 3.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 5 3.A.1 Correction for misreporting in height and weight . . . . 130 Bibliography 132 6 Introduction The concept of living standards is at the base of economics: as Pigou argues in his The Economics of Welfare, ‘The social enthusiasm which revolts form the sordidness of mean streets and joylessness of withered lives ’ is, in fact, ‘the beginning of economic science’ (Pigou, 1952, p.5). Since Adam Smith’s “The Wealth of Nations”, several economists tackled questions such as what determines and how to improve the welfare of a society. 1 The long-lasting debate on the effect of industrialization on the living standards has involved, and continues to involve, generations of economic historians.2 No agreement exists, however, on how to define welfare and therefore on how to appropriately quantify and compare it across countries and/or across time. Economists traditionally identify welfare with material prosper- ity and monetary measures (such as real wage at the micro level and per capita GDP at the macro level) are used to assess the level of living stan- dard.3 In the 1960’s there was interest among sociologists in so-called social 1See for example Kaldor (1939) Hicks (1940) Little (1957) Pigou (1952) de V. Graaf (1957) Sen (1984). 2Among the works on the living standard during the industrial revolution see for ex- ample Hartwell and Engerman (1975), Lindert and Williamson (1983), Crafts (1997), Feinstein (1998), Komlos (1998) 3See for example Pigou (1952) where the terms “economic welfare”, “standard of living” or “material prosperity” are used almost as synonyms. On the emphasis put on the monetary measures of welfare such as the GDP see also Lucas (1988). i indicators (quantitative measures of education, health, pollution - to asses 4 the features of the social system) and some scholars stressed the shortcom- ings of the traditional economic indicators in reflecting the broader concept 5 of quality of life. Amartya Sen’s work represents an important departure 6 among economists. He provided a more rigorous conceptualization of the standard of living that stimulated research on new measures of welfare to in- clude aspects as mortality, education, inequality, poverty rates, child health, index of freedom, and even gender discrimination. Nowadays, the analysis of welfare is multidimensional and a broader set of instruments is used to assess socio-economic well-being. Recent research includes works on happiness (Frey and Stutzer, 2002a,b), the United Nations 7 Human Development Index (UNDP (2004)), poverty or green accounting. This thesis analyses the relationship between the economy and the stan- dard of living, meant in this modern, broader sense. It focuses on two coun- tries (i.e. Italy and Germany) and on time periods (such as the first half of the 19th century) that, despite their intrinsic interest, remained up to now at the margin of the economic debate. The first two chapters are devoted to the analysis of the effect of socio- economic processes, such as industrialization, market globalization, urbaniza- tion, agricultural policies on biological welfare measured using human height. Physical stature has been used by development economists and cliome- trician as an indicator of well-being, inasmuch as it is sensitive to features of 4 For a review on the origins and the developments in the field of the social indicators Land (1983). 5 See for example Gross (1966), Carley (1981). 6 See for example Sen (1976, 1979, 1984) 7 For a review on the evolution of the measures of ‘progress’ see Komlos and Snowdon (2005) ii the economic environment some of which are not fully captured by monetary measures (such as, work effort and the incidence of diseases). Height reflects the biological standard of living as distinct from conventional concepts, in- dicating how well the human organism thrives in its socio-economic environ- ment. Individuals who are poorly fed and have recurrent infections rarely grow well in either childhood or adolescence and are unable to achieve a final adult height that is commensurate with their genetic potential. For children and adolescents, height depends essentially on past food consumption and the incidence of diseases. Changes in socio-economic factors that influence the availability of nutrients or of the claims on them (such as changes in the price of food or in public health policies) are then reflected in adult stature. Anthropometric research has made important contributions to the un- derstanding of the impact of economic processes and institutional changes (such as industrialization and globalization) on the standard of living of so- cial groups usually excluded by traditional statistics (such as self-sufficient peasants, slaves, children, or women). Another important contribution of the research agenda has been demonstrating how rapid economic expansion did not always bring with it an overall improvement in physical welfare (as in the case of the US in the mid of 19th century). Finally, on account of the scarcity or utter absence of conventional economic data, stature proves to be extremely useful in the field of economic history. Life expectancy was suggested by Hicks and Streeten (1979) as welfare in- dicator, inasmuch as it measures how basic needs (such as nutrition, housing, access to drinkable water or health care) are met by the society. The first chapter analyses the development of the living standards in Central and Northern Italy at the beginning of the 19th century. While the iii