Economic Consequences of the U.S. Convict Labor System
Abstract I study the economic externalities of U.S. convict labor on local labor markets. Using newly collected panel data on U.S. prisons and convict-labor camps from 1886 to 1940, I show that competition from cheap prison-made goods led to higher unemployment, lower labor-force participation, and reduced wages (particularly for women) in counties that housed competing manufacturing industries. At the same time, affected industries had higher patenting rates. I find that the introduction of convict labor accounts for 16% slower growth in U.S. manufacturing wages. The introduction of convict labor also induced technical changes and innovations that account for 6% of growth in U.S. patenting in affected industries. I document that this reallocation of welfare from wage earners to capital owners had a long-lasting effect on equality of opportunities: intergenerational mobility of the bottom income quintile got worse, while it improved for the other quintiles.