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The Market for Indentured Immigrants: Evidence on the Efficiency of Forward-Labor Contracting in Philadelphia, 1745–1773

  • Farley Grubb
Abstract

Indentured servitude is modeled as a trans-Atlantic market in forward-labor contracts. The model is applied to servant-auction evidence in Philadelphia, and the determinants of contract prices are used to test the efficient-market hypothesis. While competing for servants in Europe, most of the expected price differences across servants were lost through arbitrage by recruiters.

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1 For colonial studies of indentured servitude see Galenson, David W., White Servitude in Colonial America, (Cambridge, Mass., 1981); and Smith, Abbot E., Colonists in Bondage (New York, 1947). Indentured immigration also appeared at various times and places around the world in the nineteenth and early twentieth centuries, for example see Engerman, Stanley L., “Contract Labor, Sugar, and Technology in the Nineteenth Century,” this JOURNAL, 43 (09 1983), pp. 635–59; and Galenson, David W., “The Rise and Fall of Indentured Servitude in the Americas: An Economic Analysis,” this JOURNAL, 44 (03 1984), pp. 126.

2 Grubb, Farley, “The Incidence of Servitude in Trans-Atlantic Migration, 1771–1804,” Explorations in Economic History, 22 (07 1985), pp. 316–39.

3 The other major contracting form was known as redemptioner servitude, for example see Farley Grubb, “The Market for Redemptioner Servants, Philadelphia, 1771–1804,” paper presented in the Workshop in Economic History, University of Pennsylvania, Dec 1985 (mimeo); Galenson, White Servitude, pp. 10–15; and Smith, Bondage, pp. 3–42. Additional contracting methods included those used for shipping convicts, servitude by the customs of the country, and in government-sponsored migration. See for example, Morgan, Kenneth, “The Organization of the Convict Trade to Maryland: Stevenson, Randolph & Cheston, 1768–1775,” William and Mary Quarterly, 42 (04 1985), pp. 201–27;Knittle, Walter A., Early Eighteenth Century Palatine Emigration (Philadelphia, 1937); and Walsh, Lorena S., “Servitude and Opportunity in Charles County, Maryland, 1658–1705,” in Land, Aubrey C., Carr, Lois Green, and Papenfuse, Edward C., eds., Law, Society, and Politics in Early Maryland (Baltimore, 1977), pp. 111–33.

4 Heavner, Robert O., “Indentured Servitude: The Philadelphia Market, 1771–1773,” this JOURNAL, 38 (09 1978), pp. 701–13.

5 Heavner applied his model to redemptioner rather than to indentured servants which makes his results difficult to interpret. His evidence was for German immigrant servants who used the redemptioner method exclusively. Under this method the immigrant contracted a fixed debt for passage in Europe and promised to sell himself in America, if necessary, to repay the given loan. The redemptioner entered the colonial auction with a fixed price and bargained over the time he would have to serve to repay his debt. The procedure was the opposite of the colonial auction in which an indentured immigrant had a contract of fixed length sold for the highest bid. Therefore, Heavner's regression, when applied to redemptioner evidence was incorrectly specified because he treated the price as the dependent variable and the contract length as an independent variable. For more detail see Grubb, “Redemptioner Servants.”

6 Galenson, David W., “Immigration and the Colonial Labor System: An Analysis of the Length of Indenture,” Explorations in Economic History, 14 (10 1977), pp. 360–77;Galenson, David W., “The Market Evaluation of Human Capital: The Case of Indentured Servitude,” Journal of Political Economy, 89 (06 1981), pp. 446–67; and Galenson, White Servitude, pp. 97–113.

7 The coefficients were significant at the .15 and .001 levels for the 1745 and 1771 to 1773 samples.

8 McCusker, John J., Money and Exchange in Europe and America, 1600–1775, A Handbook (Chapel Hill, 1978), pp. 185–86.

9 See Smith, Bondage, pp. 35–39; Galenson, White Servitude, pp. 251–52;Campbell, Mildred, “English Emigration on the Eve of the American Revolution,” American Historical Review, 61 (10 1955), p. 17; and Dickson, R. J., Ulster Emigration to Colonial America 1718–1775 (London, 1966), pp. 8687. The freight cost was around 3.5 to 6 pounds sterling. Adding in recruiting and equipping costs could raise the amount to 10 or 12 pounds sterling. These estimates of shipping costs may not include returns to uncertainty or risk caused by servant default due to death or disease which could cause the estimated cost of shipping servants to increase even more.

10 Profits in the indentured immigrant trade can not be directly estimated with this evidence because the cost of shipping servants was not recorded and the risk of servant default through death, disease, and escape is unknown. For a systematic effort to estimate the profits from shipping redemptioner servants see Farley Grubb, “Risk and the Rate of Return to Financing the Immigration of German Servants to Philadelphia,” paper presented at the annual meeting of the Economic History Association, Sept. 1985 (mimeo).

11 For discussions of late eighteenth-century voyage conditions on the North Atlantic see Duffy, John, “The Passage to the Colonies,” Mississippi Valley Historical Review, 28 (06 1951), pp. 2138;and Farley Grubb, “Morbidity and Mortality on the North Atlantic Passage: Evidence From Eighteenth-Century German Immigration to Pennsylvania,” Journal of Interdisciplinary History (forthcoming).

12 The Philadelphia records included contracts for resident servants and apprentices as well as for immigrant indentured and redemptioner servants. Indentured immigrants were distinguished from redemptioners by the fact that indenture sales were contract transfers and so “assigned” by a seller, other than the servant himself, to a buyer. Redemptioner contracts were formed on the spot directly by the servant. Indentured contracts commenced upon arrival in port whereas redemptioner contracts commenced upon sale. In the 1745 records roughly 87 percent of the immigrant servants used the indenture method and in the 1771 to 1773 records roughly 30 percent used the indentured method. Residents and immigrants were separated by the references to the origin of the servant. All of the indentured immigrants in the 1745 sample were Irish. About 12.6 percent of the 840 indentured immigrants in the 1771 to 1773 sample were English.with the rest being Irish. Although Irish and German immigrants each accounted for about.40 percent or more of all servants arriving in this period, Germans used the redemptioner method exclusively and so do not appear in this study.

13 See Smith, Bondage, pp. 3–4; Galenson, White Servitude, pp. 117–68; Grubb, “Incidence of Servitude,” p. 334; Gloria L. Main, “Maryland and the Chesapeake Economy, 1670–1720,” in Land, et al., Law, Society, and Politics, pp. 140–44;Menard, Russell, “From Servants to Slaves: The Transformation of the Chesapeake Labor System,” Southern Studies, 16 (Winter 1977), pp. 355–90;Wood, Peter, Black Majority (New York, 1974), pp. 131–66;Dunn, Richard S., Sugar and Slaves (New York, 1972), pp. 4783;Morgan, Edmund S., American Slavery American Freedom (New York, 1975), pp. 295315; and Grubb, Farley, “Immigrant Servant Labor: Their Occupational and Geographic Distribution in the Late Eighteenth-Century Mid-Atlantic Economy,” Social Science History, 9 (Summer 1985), pp. 249–76.

14 For the geographic distribution of purchasers of immigrant servants who arrived in Philadelphia see Grubb, “Immigrant Servant Labor.”

15 The European recruitment of indentured servants appears to have been competitive, see Galenson, White Servitude, pp. 97–98; and Smith, Bondage, pp. 1–18. The sale of indentured servants in Philadelphia also appears to have been competitive. The 1745 sample had around 500 servants, delivered on over 30 ships, and marketed by over 75 agents. The 1771 to 1773 sample had around 840 servants, delivered by over 40 ship captains, and marketed by an even greater number of agents. No colonial buyer purchased over I percent of the servants in either sample. A direct example of the spirited competition for immigrant cargoes can be seen in the transportation contract signed by 26 Germans going from Rotterdam to Philadelphia in 1756. Isaac and Zacharias Hope, major recruiters in Rotterdam, contracted to ship these Germans for 7.5 doblons each, but within the contract was also written the following condition: “But if anyone agrees to take these Germans for less than the above-mentioned sum, Messrs. Isaac & Zacharias Hope promise to do the same, except where it is plainly done as spite work against Messrs. Isaac & Zacharias Hope, in which case they release the people from the contract, however in such case those who offer cheaper transportation are to pay Messrs. Isaac & Zacharias Hope for the expenses which they incurred before the people arrived in port.”Langguth, Otto, “Pennsylvania German Pioneers from the County of Wertheim, Pennsylvania German Folklore Society, 12 (1947), pp. 260–61.

16 This function is being modeled as a hedonic price index, for a discussion of such indices see Rosen, Sherwin, “Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition,” Journal of Political Economy, 82 (01 1974), pp. 3455; and Griliches, Zvi, ed., Price Indexes and Quality Change (Cambridge, Mass., 1971).

17 Evidence on passenger fare structures for the late eighteenth century is scarce. However, the existing evidence indicates that all adult servants above age twelve on a given ship were charged the same fare; see the fares charged on the ships Belvidere, Commerce, Pennsylvania, and Elizabeth recorded in Strassburger, Ralph B., Pennsylvania German Pioneers, Hinke, William J., ed., (Norristown, Pa., 1934), vol.3, pp. 112–38; and “Passenger List of the Ship ‘Elizabeth’, Which Arrived at Philadelphia in 1819,” Pennsylvania Magazine of History and Biography, 25 (1901), pp. 255;Mittelberger, Gottlieb, Journey to Pennsylvania in the Year 1750 and Return to Germany in the Year 1754, (Cambridge, Mass., 1960), p. 17; and Strassburger, , Pioneers, vol. 1, p. xxxvii. This structure of passage fares is also used by Galenson in his model, see fn. 6.

18 Galenson, see fn. 6, extends the model by assuming that contract length was the only parameter adjusted to reach equilibrium in the recruitment market.

19 The rate assumed to discount all contracts was 25 percent; the results proved to be relatively invariant to rates ranging from 5 to 50 percent. The proper discount rate was not obvious. Other studies have simply assumed a rate without much justification. For example, the Galenson studies, see fn. 6, implicitly assumed a zero discount rate, and Heavner, “Indentured Servitude,” pp. 73–75, assumed a 15 percent discount rate. A crude measure of the discount rate of new immigrant servant contracts was derived by comparing the average price to the contract-length ratio between resident and new immigrant servants. The measure assumed that the average price to length ratio should be constant across similar servants; any differences would therefore generate a residual discount rate: (CPR/TR) = (CPI/TI)/(l + r)T1-TR Where: CPR = average resident servant prices CPI = average immigrant servant prices TR = average resident contract lengths TI = average immigrant contract lengths r = discount rate Applying the formula to the evidence cited in Table 1 yielded a discount rate of 25 percent, independent of the group of resident servants: resold immigrant contracts, local residents who voluntarily entered service, or local residents forced into service by debt. The values of immigrant contracts were discounted relative to resident servant contracts for several reasons: immigrants experienced higher morbidity and mortality, took longer to adapt to the new tasks required of them in the New World, and may have been more likely to run away because most of the contract's compensation was already paid in the form of passage to the colonies. If the 25 percent was a risk premium, then the appropriate rate would be 25 percent plus the market rate. But because the 25 percent may also capture some real productivity differences between labor in the first year and subsequent years of the contract, the 25 percent rate was used as a best guess.

20 For the 1745 sample the partical F-statistic was 1.09 which indicated that the joint insignificance of these variables cannot be rejected with confidence, a.3 significance level. For the 1771 to 1773 sample the partial F-statistic was 1.78 which also indicated that their insignificance cannot be rejected with confidence, a .18 significance level. However, for the 1771–1773 sample this does not include the ports of departure which if included would raise the partial F-statistic to a significant level.

21 This adjustment may have been caused by the lower age and productivity of the trainees relative to the average servant. The effect was also consistent with the argument that their training was marketable (nonfirm specific) and so the cost should have been borne by the servant. The servant repaid the master's training expenses by serving for a longer than normal period. See Becker, Gary S., Human Capital (2nd ed., Chicago, 1980), pp. 1926, for a discussion of nonfirm specific human capital. Although the 1771–1773 sample does not have any contracts stipulating training, several indentured contracts renegotiated after arrival indicated that servants traded an extra year of service for including a new training provision in their contract.

22 All the immigrant servants arriving in 1745 were included in the sample in Table 3. This variable was not used in the 1771–1773 sample because this market had many other redemptioner servants arriving at the same time. Thus the interpretation of this variable for the 1771–1773 sample would be unclear.

23 Quoted in Diffenderffer, Frank R., “The German Immigration into Pennsylvania Through the Port of Philadelphia, and ‘The Redemptioners’,” Pennsylvania German Society, 10 (1899), p. 227.

24 The pattern of seasonal contract lengths was opposite of Galenson's finding in White Servitude, p. 105, and was caused by the different nature of the Philadelphia market. The Philadelphia market was unique among the colonies in that almost half of the immigrant servants were Germans who arrived exclusively in the fall.

25 A lower contract price would also result if females were cheaper to transport or experienced lower voyage mortality. Existing evidence suggests this was not the case. See fn. 17; and Grubb, “Mortality and Morbidity.”

26 The comparison assumes that recruiters could make substitutions on the margin without affecting the cost of recruiting. To fill the last few spots on the ship before sailing, recruiters may have accepted low-valued servants or offered shorter contracts thus lowering the profits on these last servants.

27 The difference between male and female contract lengths was the same as found by Galenson, White Servitude, p. 104, for English servants leaving London between 1718 and 1759. Either the relative value of male versus female servants was changing by 1745, at least in the Philadelphia market, or recruiters had overestimated the relative value of females for some time.

28 See Diffenderifer, “The German Immigration,” p. 227; and Salinger, Sharon V., “‘Send No More Women:’ Female Servants In Eighteenth-Century Philadelphia,” Pennsylvania Magazine of History and Biography, 107 (01 1983), pp. 2948.

29 For example, prices for married servants were 10 percent lower, and prices for those with trade skills were 22 percent higher, than the 1771–1773 average. By waiving the right to freedom dues, a lower price of over 50 percent resulted in the 1745 sample. However, these cases only accounted for 14 contracts out of 1,338 and so are of minor importance. The difficulty in forecasting the value of some of these infrequently-used contract stipulations may explain why servants who wanted these conditions tended to opt for the redemptioner contract form. See Grubb, “Redemptioner Servants.”

30 The Bristol coefficient was significantly different from the London coefficient in Table 3 with an F-statistic of 3.74 and significant at the .05 level. The Ulster and South Ireland coefficients were not significantly different.

31 The contract price and length adjustments across ports measured the relative market evaluation of servant human capital between groups. For exampls, because London servants had the same contract length as Dublin servants but sold for higher prices, the human capital of London servants must have been more highly valued in the colonial market than were Dublin servants. Similarly, because servants from Ulster and South Ireland sold for the same price but Ulster servants had shorter contracts, the human capital of Ulster servants must have been more highly valued in the colonial market than were South Irish servants.

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