Measuring agglomeration: Products, people, and ideas in US manufacturing

I identify local, inter-industry productivity spillovers net of congestion and competition in twentieth century US manufacturing. I do so along four “Marshallian” industry connectivities: input supplying, output consuming, labor pooling, and ideas sharing. For identification, I use as natural experiments two major inventions in newly digitized, city-industry-year level US Censuses of Manufactures spanning 1880-1990: the automobile in 1904 and the semiconductor in 1958. Because both inventions were large, unanticipated demand shocks to supplier industries, I can use the pre-invention share of a city’s manufacturing employment in the shocked supplier industries an exogenous measure of the city’s invention shock. I can then identify the net connectivity spillovers by comparing pre- and post-invention employment between supplier-connected and – unconnected industries, across cities with large versus small pre-invention supplier shares. I find that in the early twentieth century, net connectivity spillovers were near zero, except for negative net output consuming spillovers. In the late twentieth century, net output consuming spillovers attenuated to zero while net labor pooling spillovers became negative. These results are consistent with falling transportation costs, increased occupational specialization, and reduced worker migration. Together, they point to limited and decreasing local, inter-industry productivity spillovers relative to congestion and competition in twentieth century US manufacturing.