Labour markets and representative institutions: evidence from colonial British America

The literature has identified the quality of political institutions in the transition region as an essential but understudied component of growth, transition and reform. This paper aims to disentangle the determinants of democratic institutions by investigating if high income inequality is always detrimental to the emergence and stability of such regimes, and under what circumstances labour scarcity can mitigate its adverse effect. Instead of using a crosscountry data set of transition countries covering only 20 years and prone to simultaneity and reverse causality, I present a quantitative analysis of suffrage restrictions in the 13 British American colonies from their establishment to the American Revolution. I show that in cases of a labour shortage elites use the right to vote as a tool to attract workers. Democratic institutions thus emerge despite high inequality and redistribution pressures, and only when labour demand eases do those in power have an incentive to contract the suffrage, as predicted by standard inequality-democracy arguments. Using a new and unique colony-level panel data set covering nearly 150 years, I estimate that a 10 percentage point decrease in the scarcity of labour, conditional on inequality and other controls, decreases the inclusiveness of political institutions by over 8 per cent in the short run, and by close to 20 per cent in the long run.