Structural Change, Elite Capitalism, and the Emergence of Labor Emancipation

This study argues that the decline of coercive labor institutions over the course of industrialization was partly driven by complementarity between physical capital and effective labor in manufacturing. Given that it is difficult to extract labor effort in care-intensive industrial tasks through monitoring and punishment, capital-owning elites ultimately chose to emancipate workers to induce their supply of effective labor and, thus, boost the return to physical capital. This mechanism is empirically examined in the context of serf emancipation in nineteenth-century Prussia. Exploiting a plausibly exogenous source of variation in proto-industrialization across Prussian regions, the analysis finds that, consistent with the proposed hypothesis, the initial abundance of elite-owned capital contributed to a higher intensity of subsequent serf emancipation and the elites' willingness to accept emancipation in exchange for lower redemption payments.