Powering Up Productivity: The Effects of Electrification on U.S. Manufacturing
We use 1890-1940 sector-county level data to identify the impact of electricity on manufacturing industries, exploiting pre-electrification variation in energy intensity across industries combined with variation across locations in proximity to early hydroelectric power plants. We find that labor productivity gains from electricity were rapid and long-lasting, in contrast with established narratives. Electrification was quickly accompanied by capital deepening and organizational changes that may have contributed to these gains. Impacts varied with market structure: productivity increased without expanding employment in sector-county cells with large initial firm size, while, in contrast, both output and employment increased in cells with small initial firm size.
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