From “Adorned with Dignity” by C.T. Friedman:
“Harav Binyamin Rabinovitz attested to the reason for the outbreak of sheitels (see his approbation for the sefer Da’as Moshe v’Yisroel):
The custom of wearing sheitels in public started approximately 150 years ago because of the decree of the Czar … Even after the decree was abolished, this custom remained and continued to be practiced in later generations until the cause for this custom has become completely forgotten.
The decree of the Czar effected a transformation in the manner in which women in all generations observed the beloved mitzvah of covering the hair. Before the gezeirah, only a minority of nonreligious woman wore sheitels as a head-covering instead of the age-old traditional kerchief worn by all women. Yet, as a result of the decree, many women slowly began wearing only a sheitel as a head-covering (without covering it with a kerchief). Even after the decree was no longer active, women continued wearing wigs in public since they became accustomed to the look. Additionally, even those women who didn’t live under the Czar’s jurisdiction began to wear wigs instead of kerchiefs since they rationalized, “If so and so, who is an upright rebbetzin, or whose husband is rav, wears a sheitel, surely it is okay for me to wear one.”
The Satmar Rebbe zt”l attested to this about one hundred years ago: “At this time, even the righteous women have taken the liberty of wearing sheitels. Indeed, Hagaon HaBa’al Machne Levi, the dayan of Frankfurt, spoke against this practice, even though in his times there was only a minority who wore sheitels…”