Structural Change, Elite Capitalism, and the Emergence of Labor Emancipation

Quamrul H. Ashraf, Williams College, Francesco Cinnirella, University of Bergamo, CEPR, and CESifo, Oded Galor, Brown University, CEPR, and NBER, Boris Gershman, American University, and Erik Hornung, CAGE, CEPR, CESifo, ECONtribute, and University of Cologne

This study argues that the decline of coercive labor institutions over the course of industrialization was partly driven by complementarity between physical capital and effective labor in manufacturing. Given the difficulty of extracting labor effort in care-intensive industrial tasks through monitoring and punishment, capital-owning elites ultimately chose to emancipate workers to induce their supply of effective labor and, thus, boost the return to physical capital. This hypothesis is empirically examined in the context of serf emancipation in nineteenth-century Prussia. Exploiting variation in proto-industrialization across Prussian counties, the analysis finds that, consistent with the proposed hypothesis, the initial abundance of elite-owned physical capital is associated with a higher pace of serf emancipation and lower redemption payments to manorial lords.