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

Robert A. Margo

NBER Working Paper No. 19147
Issued in June 2013
NBER Program(s):   DAE

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.

download in pdf format
   (402 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19147

Published: Economies of Scale in Nineteenth-Century American Manufacturing Revisited: A Resolution of the Entrepreneurial Labor Input Problem, Robert A. Margo. in Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective, Collins and Margo. 2015

Users who downloaded this paper also downloaded* these:
Hanson w8013 Scale Economies and the Geographic Concentration of Industry
Logan w13869 Economies of Scale in the Household: Puzzles and Patterns from the American Past
Smith Survey of the Empirical Evidence on Economies of Scale
Katz and Margo w18752 Technical Change and the Relative Demand for Skilled Labor: The United States in Historical Perspective
NBER Videos

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

Contact Us