A Tale of Two Tails: Plant Size Variation and Comparative Labor Productivity in U.S. and German Manufacturing in the Early 20th Century

Joost Veenstra and Herman de Jong

No 32, CEH Discussion Papers from Centre for Economic History, Research School of Economics, Australian National University

Abstract: This paper presents a German/U.S. comparison of labor productivity in mining and manufacturing for two benchmark years, 1909 and 1936/35. German manufacturing productivity had a level of ca 56 per cent of the U.S. level in 1909, and around 50 per cent in 1935. Variation across industries was large. Next we analyze for 1909 whether the scale of production has been a decisive factor in the differences in performance between Germany and the U.S. American data on state level show no direct relationship between the average plant size and labor productivity. We do find a positive relationship between labor productivity and the skewness of the distribution of plants size. In turn, skewness is strongly correlated with the number of plants established in a state. From this we draw the tentative conclusion that skewness provides a measure of plant-concentration and captures external economies of scale, flexibility and competition, driving the positive relation with labor productivity. With respect for the transatlantic labor productivity gap, these findings suggest that the comparatively low average establishment size in Germany did not necessarily convey a disadvantage. More important may have been the setting in which small German establishments operated that kept them from attaining U.S. levels of labor productivity. We conjecture that GermanyÆs poor average productivity performance in manufacturing was a combined effect of low wages and heterogeneous demand patterns.

Date: 2015-02
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