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

Robert A. Margo

Chapter in NBER book Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective (2015), William J. Collins and Robert A. Margo, editors (p. 215 - 244)
Conference held December 14, 2013
Published in September 2015 by University of Chicago Press
© 2015 by the National Bureau of Economic Research

In a classic paper, Kenneth Sokoloff argued that the labor input of entrepreneurs was generally omitted from the count of workers in manufacturing establishments in the early US censuses of manufacturing. This biased downward econometric estimates of economies of scale if left uncorrected. As a fix Sokoloff proposed a “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, so Sokoloff’s imputation is not warranted for these census years. However, like Sokoloff I find that the census understated the labor input in small relative to large establishments, but for a different reason. The census purported to collect data on the average labor input, but it most likely measures the typical number of workers present. For very small establishments the reported typical number of workers is biased downwards relative to a true average but this is not so for large establishments. Therefore, the early censuses of manufacturing overstated labor productivity in small relative to large establishments but the size of the bias is smaller than alleged by Sokoloff.

This chapter is no longer available for free download, since the book has been published. To obtain a copy, you must buy the book.
Order from

This paper was revised on August 25, 2014

Machine-readable bibliographic record - MARC, RIS, BibTeX

This chapter first appeared as NBER working paper w19147, Economies of Scale in Nineteenth Century American Manufacturing Revisited: A Resolution of the Entrepreneurial Labor Input Problem, Robert A. Margo
Users who downloaded this chapter also downloaded these:
Hilt Corporate Governance and the Development of Manufacturing Enterprises in Nineteenth-Century Massachusetts
Mancall, Rosenbloom, and Weiss h0126 Conjectural Estimates of Economic Growth in the Lower South, 1720 to 1800
Katz and Margo w18752 Technical Change and the Relative Demand for Skilled Labor: The United States in Historical Perspective
Lamoreaux Revisiting American Exceptionalism: Democracy and the Regulation of Corporate Governance: The Case of Nineteenth-Century Pennsylvania in Comparative Context
Olmstead and Rhode Were Antebellum Cotton Plantations Factories in the Field?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us