Changing Returns to Scale in Manufacturing 1880-1930: The Rise of (Skilled) Labor?

69 Pages Posted: 5 Apr 2021 Last revised: 10 Apr 2021

See all articles by Jeanne Lafortune

Jeanne Lafortune

Pontifical Catholic University of Chile - Institute of Economics; IZA

Ethan G. Lewis

Dartmouth College - Department of Economics

José Pablo Martínez

Fiscalia Nacional Economica

José Tessada

Business School, Pontificia Universidad Católica

Date Written: April 2021

Abstract

This paper estimates returns to scale for manufacturing industries around the turn of the twentieth century in the United States by exploiting an industry-city panel data for the years 1880-1930. We estimate decreasing returns to scale on average over the period, contrary to most of the existing literature, because our empirical methodology allows us to separate returns to scale from "agglomeration" effects. We also find that returns to scale grew substantially after 1910, mostly because the return to labor grew. We find that this was more marked in industries that were more intensive in human capital and energy at the beginning of the period and in cells that were less competitive. Overall, results suggest that technological change and lack of initial competition played relevant roles in the rise of larger establishments in manufacturing.

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Suggested Citation

Lafortune, Jeanne and Lewis, Ethan G. and Martínez, José Pablo and Tessada, Jose, Changing Returns to Scale in Manufacturing 1880-1930: The Rise of (Skilled) Labor? (April 2021). NBER Working Paper No. w28633, Available at SSRN: https://ssrn.com/abstract=3819536

Jeanne Lafortune (Contact Author)

Pontifical Catholic University of Chile - Institute of Economics ( email )

Casilla 76
Correo 17
Santiago
Chile

IZA ( email )

Ethan G. Lewis

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

José Pablo Martínez

Fiscalia Nacional Economica ( email )

Agustinas 853
Santiago
Chile

Jose Tessada

Business School, Pontificia Universidad Católica ( email )

Vicuna Mackenna 4860
Santiago
Chile

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