Author: Will Damron
Journal: Explorations in Economic History
Abstract: Between 1900 and 1930, the share of power in American manufacturing coming from electricity grew from 10% to 80%. Although electrification has been attributed with dramatic productivity gains, data limitations have constrained previous research to rely on aggregate data. Using a newly-collected dataset covering manufacturers in North Carolina in the early 1900s, I examine the effects of electrification at the establishment level. Manufacturers who electrified increased their productivity and output relative to manufacturers who did not. The effects on workers were mixed. While electrification increased average wages, it also increased the return to skill and reduced the labor share. Delays in electricity adoption point to the importance of complementary innovations in electricity transmission and financial markets.
Key Findings
- The costs of adoption mattered, factories near hydropower plants were more likely to electrify, indicating the importance of purchased electricity, and incorporated factories were more likely to electrify, suggesting the role of capital constraints.
- While electrification was a decision made at the firm level, external factors, such as capital markets and the electrical grid, were important for allowing electricity to be widely adopted.
- Taken together, these results help explain why electricity was such a revolutionary technology and why it took so long for electricity to achieve its most dramatic effects.
- Widespread electrification required the development of complementary technologies, such as long-distance transmission, and financial institutions that made it possible for manufacturers to invest in electrification.
- Established manufacturers had already invested in old technologies, and these investments prevented them from taking full advantage of electricity. As these constraints were lifted, more manufacturers electrified, contributing to the dramatic economic growth of the early twentieth century.
Citation: Damron, Will. Gains from Factory Electrification: Evidence from North Carolina, 1905-1926. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2025-01-06. https://doi.org/10.3886/E214761V1
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