How The Legacy of Slavery Has Survived: A Mechanism through Labor Market Institutions and Human Capital

In spite of sizable qualitative literature on the long-run legacy of slavery, its robust evidence and convincing mechanism have not been established. This research evaluates the legacy of slavery on long-run development and its detailed mechanism which consists of two key factors, labor market institutions and human capital structure. Using county-level data of the U.S. South and exploiting exogenous variation in ecological conditions, I show that slavery has had persistent negative impact on economic development through the human capital structure. To explain the link between slavery and human capital, I find from complete count census data in 1940 that the legacy of slavery impeded integration of black workers into the competitive labor market which accordingly reduced the incentives of blacks to invest in human capital. In addition, evidence from the progressive Era along the border counties shows that the legacy of slavery on the labor market was operated through selective enforcement of labor market regulations. Lastly, I present the roles of racial wage discrimination and selective migration which reinforced persistence of the mechanism.