Coercive Contract Enforcement: Law and the Labor Market in 19Th Century Industrial Britain
Coercive Contract Enforcement: Law and the Labor Market in 19th Century Industrial Britain Suresh Naidu and Noam Yuchtman∗ April 26, 2012 Abstract British Master and Servant law made employee contract breach a criminal offense until 1875. We develop a contracting model generating equilibrium contract breach and prosecutions, then exploit exogenous changes in output prices to examine the effects of labor demand shocks on prosecutions. Positive shocks in the textile, iron, and coal industries increased prosecutions. Following the abolition of criminal sanctions, wages differentially rose in counties that had experienced more prosecutions, and wages responded more to labor demand shocks. Coercive contract enforcement was applied in industrial Britain; restricted mobility allowed workers to commit to risk-sharing contracts with lower, but less volatile, wages. JEL codes: J41, K31, N33, N43. ∗Naidu: SIPA and Department of Economics, Columbia University, NBER, and CIFAR; 420 West 118th Street, New York, NY, 10027. Yuchtman: Haas School of Business, UC-Berkeley and NBER; 2220 Piedmont Avenue, Berkeley, CA, 94720. We thank Ryan Bubb, Davide Cantoni, Greg Clark, Ernesto Dal B´o,Melissa Dell, Oeindrila Dube, Stan Engerman, James Fenske, Camilo Garcia, Claudia Goldin, Larry Katz, Peter Lindert, James Robinson, and many seminar participants for their comments. Remeike Forbes and Laurence Wilse-Samson provided excellent research assistance. Economists and economic historians often draw a bright line between free and forced labor. Forced labor is typically studied in the context of agricultural, preindustrial economies; free labor is seen as a crucial component of economic modernization and development, and is implicitly assumed in contemporary models of labor markets. However, \intermediate" labor market institutions { between free and forced labor { have been common throughout history.
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