Lecture_06 - Review: The American System of manufactures...

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Review: The “American System” of manufactures • Did the conversion from artisanal shops to larger (non- mechanized) factories contribute to efficiency gains? • Suggestive evidence : We saw that, from 1820-1850, average firm size increased from 20 to 43 workers. Furthermore, large factories employed more women and children (non-specialized labor) • Better test : Do we observe economic gains to scale? By combining two factories of 20 workers each into one factory of 40 workers, was output more than doubled? Alternatively, was output per worker higher in the larger factories? Conceptual framework behind the test for economies of scale Start with Cobb-Douglas production function: Q = AK a L b Divide through by L: Q/L = A(K/L) a L c where c = a(b-1) This step gives us labor productivity [Compare this to total factor productivity: A = Q/(K a L b )] Collect data on firms in 1850. Sokoloff finds 3,024 textile firms in the Census of Manufactures. He knows total output, number of workers, and amount of capital. Key question is: what is the relationship between number of workers (X) and output per worker (Y). Graph X and Y on a scatter plot. First, try to fit a single line through the points ( BLUE LINE ). Then, allow for a different intercept and a different slope for factories with 6+ workers ( RED LINE ) using the same underlying data.
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Economies of scale in non-mechanized factories (1850) NOTE: Underlying “data points” are for purposes of illustration 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 1 2 3 4 5 6 7 8 9 10 Number of workers
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This note was uploaded on 04/13/2009 for the course ECON 183 taught by Professor Boustan during the Winter '09 term at UCLA.

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Lecture_06 - Review: The American System of manufactures...

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