Economic Consequences of the U.S. Convict Labor System

I study the economic spillovers of convict labor on local labor markets and firms. Using newly collected panel data on U.S. prisons from 1886 to 1940, I calculate each county’s exposure to prisons. I exploit quasi-random variation in a county’s exposure to the capacities of pre-convict-labor prisons as an instrument. I find that competition from cheap prison-made goods led to higher unemployment and reduced wages (particularly for women) in counties that housed competing manufacturing industries. Affected industries innovated away from the competition and thus had higher patenting rates. I also document that technological changes in affected industries were capital-biased.