Reconciling Kuznets and Habbakuk in a unified growth theory

Economic historians have debated the relative labor productivity of the United States agricultural and nonagricultural sectors during the nineteenth century. David (Discussion papers in economic and social history, University of Oxford, 1996) offers a reconciliation of the opposing views by suggesting that while productivity per hour worked in agriculture was comparable to productivity in other sectors, the number of hours worked per year was relatively low, creating a large gap in annual output per worker across sectors. We model and extend a version of Davis’s reconciliation within a unified growth theory that makes connections between the decline in traditional agriculture and several other features of United States development. The dynamic general equilibrium model is consistent with the structural transformation having minor direct and indirect effects on aggregate labor productivity per hour, but substantial effects on aggregate labor productivity per worker. The model also provides a close match to the trends in schooling, fertility, rates of return to physical capital, and labor productivity growth in the nineteenth century.