Essays on the Economic Effects of Convict Labor in Modern U.S. History
My dissertation contributes towards our understanding of effects that convict labor has on economic outcomes. It consists of three chapters. The first, ``Economic Consequences of the U.S. Convict Labor System'' studies 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.
In my second chapter, ``U.S. Convict Labor System and Racial Discrimination'' I document that after the demise of the slavery and rise of crime after the end of the Civil War, convict labor system evolved in the United States in order to finance state penitentiary institutions. It provided monetary incentives to the police to arrest more people. Black and other minorities became an easy target for a police that used a variety of minor crime laws to increase the supply of coerced labor. Using the geographical variation of convict labor camps in the United States in 1886 I show that counties exposed to a more severe exploitation of convict labor experienced higher rates of incarceration among minorities in 1920, and 1930. Moreover, after the abolishment of the old convict labor system in 1941, the racial discrimination in policing remained: the same variation of convict labor camps predicts excessive arrests of Black and Hispanic for non-violent crimes (drugs and vagrancy). To show that the results are causal I use the exogenous shock of first massive expansion of the U.S. convict labor system in 1870 that had happened when the National Prison Association was founded in Cincinnati, Ohio. I use distance to Cincinnati as an instrument for the value of goods produced by convict labor. It correlates with the likelihood of attending the Congress by the wardens of prisons, and cost of getting information about the profitability of convict labor. I perform a series of sensitivity checks and placebo tests to ensure that results are indeed causal.
In the third and last chapter, using historical distribution of the prison and convict labor camps in the United States, I study the long-run effect of convict labor on equality of opportunities. Convict labor negatively affected wages of low-skilled workers and had positive effects on firms 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.