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Economies of Scale in Nineteenth Century American Manufacturing Revisited: A Resolution of the Entrepreneurial Labor Input Problem

In: Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective

  • Robert A. Margo

In a famous paper, Kenneth Sokoloff argued that the labor input of entrepreneurs was generally not included in the count of workers in manufacturing establishments in the early censuses of manufacturing. According to Sokoloff, this biased downward econometric estimates of economies of scale if left uncorrected. As a fix Sokoloff proposed a particular "rule of thumb" imputation for the entrepreneurial labor input. Using establishment level manufacturing data from the 1850-80 censuses and textual evidence I argue that, contrary to Sokoloff's claim, the census did generally include the labor of entrepreneurs if it was economically relevant to do so, and therefore Sokoloff's imputation is not warranted for these census years. However, I also find that the census did understate the labor input in small relative to large establishments as Sokoloff asserted, but for a very different reason. The census purported to collect data on the average labor input but, in fact, the data most likely measure the typical number of workers present. For very small establishments the reported figures on the typical number of workers are biased downwards relative to a true average but this is not the case for large establishments. As a result, the early censuses of manufacturing did overstate labor productivity in small relative to large establishments but the size of the bias is smaller than alleged by Sokoloff.

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Handle: RePEc:nbr:nberch:13133
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  1. Jeremy Atack & Fred Bateman & Robert A. Margo, 2000. "Productivity in Manufacturing and the Length of the Working Day: Evidence from the 1880 Census of Manufactures," Macroeconomics 0012003, EconWPA.
  2. Kris Inwood & Ian Keay, 2012. "Diverse paths to industrial development: evidence from late-nineteenth-century Canada," European Review of Economic History, Oxford University Press, vol. 16(3), pages 311-333, August.
  3. Thomas Weiss, 1991. "Long Term Changes in U.S. Agricultural Output per Worker, 1800 to 1900," NBER Historical Working Papers 0023, National Bureau of Economic Research, Inc.
  4. Claudia Goldin & Kenneth L. Sokoloff, 1981. "Women, Children, and Industrialization in the Early Republic: Evidence from the Manufacturing Censuses," NBER Working Papers 0795, National Bureau of Economic Research, Inc.
  5. Atack, Jeremy, 1978. "Estimation of Economies of Scale in Nineteenth-Century United States Manufacturing and the Form of the Production Function," The Journal of Economic History, Cambridge University Press, vol. 38(01), pages 268-270, March.
  6. Atack, Jeremy, 1985. "Industrial structure and the emergence of the modern industrial corporation," Explorations in Economic History, Elsevier, vol. 22(1), pages 29-52, January.
  7. Nye, John Vincent, 1987. "Firm Size and Economic Backwardness: A New Look at the French Industrialization Debate," The Journal of Economic History, Cambridge University Press, vol. 47(03), pages 649-669, September.
  8. Jeremy Atack & Michael R. Haines & Robert A. Margo, 2008. "Railroads and the Rise of the Factory: Evidence for the United States, 1850-70," NBER Working Papers 14410, National Bureau of Economic Research, Inc.
  9. Stanley L. Engerman & Robert E. Gallman, 1986. "Long-Term Factors in American Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number enge86-1, September.
  10. Jeremy Atack & Fred Bateman & Robert Margo, 2006. "Steam Power, Establishment Size, and Labor Productivity Growth in Nineteenth Century American Manufacturing," NBER Working Papers 11931, National Bureau of Economic Research, Inc.
  11. Jeremy Atack & Fred Bateman & Robert A. Margo, 2001. "Part-Year Operation in Nineteenth Century American Manufacturing: Evidence from the 1870 and 1880 Censuses," Vanderbilt University Department of Economics Working Papers 0106, Vanderbilt University Department of Economics, revised Mar 2001.
  12. Atack, Jeremy & Bateman, Fred & Margo, Robert A., 2004. "Skill Intensity and Rising Wage Dispersion in Nineteenth-Century American Manufacturing," The Journal of Economic History, Cambridge University Press, vol. 64(01), pages 172-192, March.
  13. Doraszelski, Ulrich, 2004. "Measuring returns to scale in nineteenth-century French industry," Explorations in Economic History, Elsevier, vol. 41(3), pages 256-281, July.
  14. Atack, Jeremy & Bateman, Fred, 1992. "How Long Was the Workday in 1880?," The Journal of Economic History, Cambridge University Press, vol. 52(01), pages 129-160, March.
  15. Stanley L. Engerman & Robert E. Gallman, 1986. "Introduction to "Long-Term Factors in American Economic Growth"," NBER Chapters, in: Long-Term Factors in American Economic Growth, pages 1-6 National Bureau of Economic Research, Inc.
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