Kim Sukkoo  “Division of labor and the rise of cities: evidence from US industrialization, 1850-1880”, Journal of Economic Geography, 6/3, 469-491.
“In the USA, the Industrial Revolution occurred in two distinct phases between the nineteenth and the twentieth centuries. Between 1820 and 1840, early industrialization began in New England as manufacturing re-organized from artisanal shops to non-mechanized factories in a relatively small number of industries such as textile, leather, and shoes. In the second phase of industrialisation, which occurred between 1850 and 1920, factory production rose in scale, became mechanized, and spread to numerous industries and to the North-eastern region known as the manufacturing belt” (p.469).
Three sets of hypothesis try to explain why early factories settled mostly in the rural areas of New England in the 1820s-40s:
- It was close to the main source of energy: water.
- It was next to the largest source of labour (the US population was still at 92% rural).
- It was where the most cost-effective workforce was to be found (ie. women and children) (p.470).
“Why did industrialisation cause urbanisation in the second half od the nineteenth century? Duranton and Puga  […] categorize the models of city formation into three essential [classes]: sharing, matching, and learning.
- Sharing economies come from indivisibilities in the provision of goods or facilities […].
- Matching economies exist when search costs of firms and workers decline with agglomeration.
- Finally, learning economies occur when geographic proximity of agents facilitates learning” (p.473).
Effects of urbanisation
“This paper uses the Atack-Bateman-Weiss (ABW) sample for manufacturing firms drawn from the manuscripts of the decennial censuses for 1850, 1860, 1870, and 1880” (p.474).
As expected wages and labour productivity were higher in the urban firms than in the rural ones and the trend was significantly stronger in 1870-80 and in 1850-60 (p.477). Capital intensity was positively correlated with wages and firms with higher shares of male workers paid higher average wages (p.479).
The urban wage-premium appears to apply across the board to different skilled categories and to increase over time (p.481). Yet urbanization hardly modified the skilled-unskilled wage gap.
Urbanization was positively correlated with labour productivity and wages (p.482).
Causal linkage of industrialization and urbanization
“The fact that early industrialization began in rural areas of New England casts some doubts on the importance of certain types of agglomeration economies such as sharing or learning. […] Geographic evidence o patents for the early and late industrial period suggest that technological learning or spillovers may have caused patent activity to concentrate in cities, but may not have had a similar impact on production.”
“In early industrialization, firms located in rural New England because early factories made extensive use of rural native women and children. Because early industrialization was concentrated in only a handful of industries, and because the division of (p.484) labour was only modest, labour market transaction costs were also likely to have been modest. […] Market information was easily communicated throughout rural New England because factory towns and cities were very specialized.”
“Market transaction costs rose significantly in the second half of the nineteenth century. As the scale of factories rose with greater utilization of the division of labour, and as firm and labour specialization increased, it became increasingly more difficult to recruit and efficiently match workers and firms in rural locations. As immigration increased significantly over the second half of the nineteenth century, manufacturers shifted their labour force from native women and children to immigrant workers who favoured urban locations. (p.485) […] Because there were considerable turnover and instability in the job market during the period of the second industrial revolution, cities lowered the search costs of workers.”
“Because few workers were hired on a permanent basis, workers generally made their rounds to various firms early in the morning where the foreman hired the required workers for the day. As most workers walked to work, they lived in close proximity to the packing house” (p.486).
Yet because of their highly specialized origins, New England cities proved unable to diversify their industries (p. 487).