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Factor Substitution and Labor Productivity Growth in American Manufacturing, 1839–1899

Published online by Cambridge University Press:  11 May 2010

Paul J. Uselding
Paul J. Uselding
Affiliation:
Johns Hopkins University
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Extract

The work of H. J. Habakkuk, Peter Temin, Robert Fogel, and Nathan Rosenberg on the effect of relative factor price differentials between America and England in the nineteenth century on the course of technological development has generated considerable interest in providing some empirical evidence on the labor scarcity hypothesis. Briefly stated, the hypothesis claims that relatively higher wages in America brought about the invention and use in production of a relatively capital intensive technology, and since “technical possibilities were richest at the capital intensive end of the spectrum,” this phenomenon was somehow responsible for the unique characteristics of American technology, that is, interchangeable parts, certain machine tool developments, and the proliferation of self-acting mechanisms.

Type
Articles
Information
The Journal of Economic History , Volume 32 , Issue 3 , September 1972 , pp. 670 - 681
Copyright
Copyright © The Economic History Association 1972

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References

I am indebted to Stanley Engerman and the Editor of this Journal for very helpful comments and suggestions. Any errors of omission or commission are mine.

1 Habakkuk, H. J., American and British Technology in the Nineteenth Century (Cambridge, England: Cambridge University Press, 1962).Google Scholar

2 Temin, Peter, “Labor Scarcity and the Problem of American Industrial Efficiency in the 1850's,” The Journal of Economic History, XXVI (Sept. 1966), 277–98.CrossRefGoogle Scholar

3 Fogel, Robert, “The Specification Problem in Economic History,” The Journal of Economic History, XXVII (Sept. 1967), 283–308.CrossRefGoogle Scholar

4 Rosenberg, Nathan, “Anglo-American Wage Differences in the 1820's,” The Journal of Economic History, XXVIII (June 1967).Google Scholar

5 Habakkuk, American and British Technology …, pp. 50–52.

6 Salter, W. E. G., Productivity and Technical Change, Monograph No. 6, (Cambridge, England: Cambridge University Press, 1966), pp. 46–47Google Scholar and 185–86.

The calculations in Table 2 are based on the formula:

where

a = labor's share of net output

b = capital's share of net output

a = elasticity of substitution

r = w/k = relative factor price

k = rental of capital

w = wage rate

The percentage increase in labor productivity due to substitution is given by the following equation:

where

7 Budd, E. C., “Factor Shares 1850–1910,” in Trends in the American Economy in the 19th Century, Studies in Income and Wealth, XXIV, NBER, (Princeton: Princeton University Press, 1960).Google Scholar

8 Jorgenson, D. W., “The Theory of Investment Behavior,” in Ferber, Robert (ed.), Determinants of Investment Behavior, Universities-National Bureau Conference Series, No. 18 (New York: Columbia University Press, 1967), pp. 129–55.Google Scholar

9 E. C. Budd, “Factor Shares 1850–1910,” p. 382.

10 Nelson, R. R., ‘International Productivity Differences,” AER, LVIII (Dec. 1968), 1219–49Google Scholar, using a similar model found that at most one-half of the difference in labor productivity between Columbia and the United States during the period 1958–64 could be explained by differences in the capital-labor ratio. The question posed by Nelson was “How much larger would value added per worker be in Columbian manufacturing industry if Columbia had a capital stock per worker roughly comparable to that in the United States (but no other changes affecting productivity were made)?”

11 Kuznets, Simon, Capital in the American Economy, NBER (Princeton: Princeton University Press, 1961), p. 209, Table 30, col. (7).Google Scholar

12 Sato, Ryuzo, “The Estimation of Biased Technical Progress and the Production Function,” International Economic Review, XI (June 1970), pp. 179–208.CrossRefGoogle Scholar