Development of the American Economy

March 7, 2015
Claudia Goldin of Harvard University, Organizer

Karen Clay, Carnegie Mellon University and NBER; Joshua A. Lewis, University of Montreal; and Edson R. Severnini, Carnegie Mellon University

Benefits and Costs of Electricity Pre-Clean Air Act

In this paper, Clay, Lewis, and Severnini study the local impact of air pollution on infant mortality and housing prices. The empirical analysis relies on the historical expansion in fossil fuel electricity generation from 1938 to 1962, the leading source of domestic coal consumption by the mid-20th century. Combining newly digitized information on plant-level coal consumption with county-level air quality measures and infant mortality rates, the researchers find that increases in coal consumption are associated with higher concentrations of total suspended particulates (TSPs) and increases in infant mortality. They estimate that the rise in power plant emissions was responsible for an additional 9,486 infant deaths over the sample period. They examine whether these health costs were capitalizated into housing values. Although estimates of the average marginal willingness to pay for clean air are close to zero, the researchers uncover significant heterogeneity in the housing market response. At low levels of baseline electricity access, thermal power plants are considered an amenity by local residents. As access to electricity expands, the pollution costs overwhelm the benefits of energy production, and the relationship between thermal emissions and housing prices reverses. These results highlight a challenge for current energy policy in the developing world: Given the longevity of electricity generation infrastructure, policymakers must take into account both current and future preferences for thermal power when making investment decisions.

B. Zorina Khan, Bowdoin College and NBER

Invisible Women: Entrepreneurship, Innovation and Family Firms in France during Early Industrialization (NBER Working Paper 20854)

Family firms are typically associated with negative characteristics, including lower tendencies towards innovation, a higher risk of failure, and inefficiencies deriving from nepotism among family members, criticisms which are even greater when the company is handed over to a female relative. Women in business have generally been presented as petty traders and passive investors, whose entrepreneurial activities were scarce because of such restrictions as limited human capital, culture, market imperfections, and institutional biases. The French economy has similarly been faulted for the prevalence of family firms during the nineteenth century, and for disincentives for the integration of women in the business sector. Khan explores these issues using an extensive sample of women who obtained patents and prizes at industrial exhibitions during early industrialization. The empirical evidence indicates that middle-class women in France were extensively engaged in entrepreneurship and innovation, and that their commercial efforts were enhanced by association with family firms. Their formerly invisible achievements suggest a more productive role for family-based enterprises, as a means of incorporating relatively disadvantaged groups into the market economy as managers and entrepreneurs.

Daniel K. Fetter, Wellesley College and NBER, and Lee Lockwood, Northwestern University and NBER

Means-tested Old Age Support and Private Behavior: Evidence from the Old Age Assistance Program

A major source of the expansion of governments over the last several decades has been their role in operating social insurance programs. Most of these programs are implemented at the national level and in the recent past have been only rarely subject to large reforms, creating a major challenge for learning about the quantitative size of their consumption-smoothing benefits and moral hazard costs. In this paper, Fetter and Lockwood investigate the Old Age Assistance Program (OAA), a means-tested and state-administered pension program created by the Social Security Act of 1935. OAA was the primary source of government old age support through the 1930s and 1940s, remaining much larger than Social Security until the 1950s. Using newly available complete-count Census data from 1940, the researchers exploit the large differences in OAA programs across states and the detailed rules that governed eligibility for OAA within states to estimate the labor supply effects of OAA. They find that OAA significantly reduced labor supply, with their main estimates indicating that OAA led to a 5.7 percentage point reduction in labor force participation among men aged 65-74, or 11 percent relative to the base of roughly 50 percent participation.

Felipe Gonzalez, University of California, Berkeley; Guillermo Marshall, University of Illinois, Urbana-Champaign; and Suresh Naidu, Columbia University and NBER

Start-up Nation? Slave Wealth and Entrepreneurship in Civil War Maryland

Slave property rights yielded a source of collateral as well as a coerced labor force. Using data from Dun and Bradstreet linked to the 1860 census and slave schedules in Maryland, Gonzalez, Marshall, and Naidu find that slaveowners were more likely to start businesses prior to the uncompensated 1864 emancipation, even conditional on total wealth and human capital, and this advantage disappears after emancipation. The researchers argue that this is due to the superiority of slave wealth as a source of collateral for credit rather than any advantage in production. The collateral dimension of slave property magnifies its importance to historical American economic development.

Emily Nix, Yale University, and Nancy Qian, Yale University and NBER

The Fluidity of Race: "Passing" in the United States, 1880-1940 (NBER Working Paper 20828)

This paper quantifies the extent to which individuals experience changes in reported racial identity in the historical U.S. context. Using the full population of historical Censuses for 1880-1940, Nix and Qian document that over 19% of black males "passed" for white at some point during their lifetime, around 10% of whom later "reverse-passed" to being black; passing was accompanied by geographic relocation to communities with a higher percentage of whites and occurred the most in Northern states. The evidence suggests that passing was positively associated with better political-economic and social opportunities for whites relative to blacks. As such, endogenous race is likely to be a quantitatively important phenomenon.

Michael Huberman, Université de Montréal; Christopher M. Meissner, University of California, Davis and NBER, and Kim Oosterlinck, Université libre de Bruxelles

Technology and Geography in the Second Industrial Revolution: New Evidence from the Margins of Trade (NBER Working Paper 20851)

In the Belle Époque, Belgium recorded an unprecedented trade boom, but growth in output per capita was lackluster. Huberman, Meissner, and Oosterlinck seek to reconcile this ostensible paradox. Because of the sharp decline in both fixed and variable trade costs, the trade boom was as much about the expansion in the number of products delivered and markets served as it was about shipping more of the same old products. The researchers use a new highly disaggregated data set on bilateral exports at the product level to illustrate these claims. In line with new trade theory, the effect of trade on productivity was mediated by sector-level firm heterogeneity and product differentiation. In new technology sectors, like tramways, the high degree of firm heterogeneity amplified the effect of trade on productivity. But in other sectors, mainly old staple industries like cotton textiles, a high level of firm uniformity muted the effect of trade. Into the twentieth century, old staples trumped new technology sectors, per capita income growing modestly as a result.

Andrew Goodman-Bacon, University of California, Berkeley

Public Insurance and Mortality: Evidence from Medicaid Implementation

In this paper, Goodman-Bacon provides new evidence that Medicaid's introduction reduced mortality rates among nonwhite infants and children in the 1960s and 1970s. Medicaid required states to cover all cash welfare recipients, which induced substantial cross-state variation in the share of children immediately eligible for the program. Before Medicaid, higher- and lower-eligibility states had similar levels and trends in infant and child mortality rates. After Medicaid, public insurance utilization increased and mortality fell more rapidly among nonwhite children and infants in high Medicaid-eligibility states. The estimates suggest that Medicaid reduced mortality among nonwhite child recipients by 24 percent. The introduction of Medicaid can account for 8 percent of the decline in nonwhite child mortality and 15 percent of the reduction in the racial gap in child mortality between 1965 and 1979.