Economic History Association
The Market for Indentured Immigrants: Evidence on the Efficiency of Forward-Labor
Contracting in Philadelphia, 1745-1773
Author(s): Farley Grubb
Source: The Journal of Economic History, Vol. 45, No. 4 (Dec., 1985), pp. 855-868
Published by: Cambridge University Press on behalf of the Economic History Association
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The Market for Indentured Immigrants:
Evidence on the Efficiency of ForwardLabor Contracting in Philadelphia,
1745-1773
FARLEY GRUBB
Indentured servitude is modeled as a trans-Atlanticmarket in forward-labor
contracts. The model is appliedto servant-auctionevidence in Philadelphia,and
the determinantsof contract prices are used to test the efficient-markethypothesis. While competing for servants in Europe, most of the expected price
differencesacross servants were lost througharbitrageby recruiters.
INDENTURED servitude played an importantrole in European
migration to North America in the seventeenth and eighteenth
centuries.' Emigrantsattracted by the opportunitiesin America but too
poor to affordthe voyage could trade contracts on their futurelabor for
passage fare to America before leaving Europe. Shippers would carry
these immigrantsand their labor contracts across the Atlantic and sell
them to recover voyage expenses. By guaranteeingthe contract terms
to the servant before sailing these shipperswere essentially speculating
in forward-laborcontracts. As late as the American Revolution the
majorityof European immigrantsmay have voluntarilyused servitude
to pay for the journey.2 Indenturedimmigrationwas one of the most
importantprivate-marketsolutions to financingthe colonial migrationof
poor Europeans.3
Journal of Economic History, Vol. XLV, No. 4 (Dec. 1985). C The Economic History
Association. All rightsreserved. ISSN 0022-0507.
The author is Assistant Professor of Economics at the University of Delaware, Newark,
Delaware 19716. He is gratefulto Gary Becker, John Craig, Stanley Engerman,Robert Fogel,
VirginiaFrance, David Galenson, RichardHellie, Saul Hoffman,John Huizinga,CharlesKahn,
Jeffrey Miller, Jon Moen, Jim Mulligan,John Pritchett, Peter Rossi, Theodore Schultz, Ralph
Shlomowitz,RichardSutch, Donghyu Yang, the editor, and the anonymousreferees for helpful
commentson earlierdrafts. Earlierversions of this paperwere presentedat the 1983Cliometrics
Conferenceat the Universityof Iowa, the Universityof Chicago, the Universityof Connecticut,
DartmouthCollege, the University of Delaware, and the University of Marylandat Baltimore
County. The authoris gratefulfor the commentsfrom the membersof these seminars.
' For colonial studies of indenturedservitude see David W. Galenson, White Servitude in
Colonial America, (Cambridge, Mass., 1981); and Abbot E. Smith, Colonists in Bondage (New
York, 1947).Indenturedimmigrationalso appearedat varioustimes andplaces aroundthe worldin
the nineteenthand early twentieth centuries, for example see Stanley L. Engerman,"Contract
Labor, Sugar, and Technology in the Nineteenth Century," this JOURNAL, 43 (Sept. 1983),pp.
635-59; and David W. Galenson, "The Rise and Fall of IndenturedServitudein the Americas:An
EconomicAnalysis," this JOURNAL, 44 (Mar. 1984),pp. 1-26.
2 FarleyGrubb,"The Incidenceof Servitudein Trans-AtlanticMigration,1771-1804,"Explorations in Economic History, 22 (July 1985),pp. 316-39.
3 The other major contractingform was known as redemptionerservitude, for example see
FarleyGrubb,"The Marketfor RedemptionerServants,Philadelphia,1771-1804,"paperpresent-
855
856
Grubb
Indenturedimmigrationwas a trans-Atlanticmarketin forward-labor
contracts. Forward contracting distinguished this market from other
forms of long-term contracting..The important issue in forward contracting is how well it conforms to the efficient-markethypothesis, or
how well future values are estimated and how efficiently the value of
information is arbitraged when negotiating the initial contract. The
analysis that follows will model and test whether the market for
indenturedimmigrantsconformed to the efficient-markethypothesis.
Previous economic studies of colonial indenturedimmigrationhave
ignored the issues of forward contractingand efficient forecasting and
instead have favored use of the market to evaluate humancapital. For
example, Robert Heavner analyzed the auction of servants after they
arrived in Philadelphiaand used the variance in contract prices as the
sole measure of differences in servant human capital.4 He modeled
indentured immigrationas a spot market and ignored the effect that
competitive recruiting of servants in Europe would have on their
subsequent colonial prices.5
By contrast, David Galenson analyzed recruitment of indentured
servants in Englandand used the variancein contractlengths negotiated
prior to sailing as the primarymeasure of differencesin servant human
capital.6 He assumed that recruiters in Europe competed away all
expected contract price differences in the colonies by altering the
contract terms offered servants, principallythe amountof service time,
until their expected colonial value just equaled their shippingcost. The
ed in the Workshop in Economic History, University of Pennsylvania, Dec. 1985 (mimeo);
Galenson, White Servitude, pp. 10-15; and Smith, Bondage, pp. 3-42. Additionalcontracting
methodsincludedthose used for shippingconvicts, servitudeby the customsof the country,andin
government-sponsoredmigration.See for example, Kenneth Morgan,"The Organizationof the
Convict Trade to Maryland:Stevenson, Randolph& Cheston, 1768-1775," Williamand Mary
Quarterly, 42 (Apr. 1985), pp. 201-27; Walter A. Knittle, Early Eighteenth Century Palatine
Emigration(Philadelphia,1937);and Lorena S. Walsh, "Servitudeand Opportunityin Charles
County, Maryland,1658-1705,"in AubreyC. Land, Lois GreenCarr,and EdwardC. Papenfuse,
eds., Law, Society, and Politics in Early Maryland (Baltimore, 1977), pp. 111-33.
Robert 0. Heavner, "Indentured Servitude: The PhiladelphiaMarket, 1771-1773," this
38 (Sept. 1978),pp. 701-13.
Heavnerappliedhis modelto redemptionerratherthanto indenturedservantswhichmakeshis
results difficult to interpret. His evidence was for German immigrantservants who used the
redemptionermethod exclusively. Under this method the immigrantcontracteda fixed debt for
passagein Europeand promisedto sell himself in America,if necessary, to repaythe given loan.
The redemptionerentered the colonial auction with a fixed price and bargainedover the time he
would have to serve to repay his debt. The procedurewas the opposite of the colonial auctionin
which an indenturedimmigranthad a contractof fixed length sold for the highestbid. Therefore,
Heavner'sregression,when appliedto redemptionerevidence was incorrectlyspecifiedbecausehe
treatedthe price as the dependentvariableand the contractlengthas an independentvariable.For
more detail see Grubb, "RedemptionerServants."
6 David W. Galenson, "Immigration
and the ColonialLaborSystem:An Analysisof the Length
of Indenture,"Explorationsin EconomicHistory, 14(Oct. 1977),pp. 360-77; David W. Galenson,
"The Market Evaluation of Human Capital: The Case of IndenturedServitude," Journal of
4
JOURNAL,
5
Political Economy, 89 (June 1981), pp. 446-67; and Galenson, White Servitude, pp. 97-113.
Market for Indentured Immigrants
857
shipping cost was assumed to be constant across servants, therefore,
the expected colonial price would be constant across servants.
In effect, Galenson invoked the efficient-markethypothesis to assume
that colonial auction prices had no additionalinformationwith respect
to measuringhuman capital, and he used this to justify the absence of
contract prices in his regression analysis. However, if recruiters in
Europe did not forecast the future colonial prices of their servants with
perfect efficiency, then the relationshipbetween contractlength and the
value of servant humancapital would be broken. Therefore,Galenson's
conclusions depend critically on how well the marketconformedto the
efficient-markethypothesis.
At first glance, evidence on contract prices in the colonies does not
support the efficient arbitrage of all price differences. For example,
indentured immigrant prices in Philadelphia, the largest and most
developed servant market in eighteenth-centuryNorth America, exhibited considerablevariance, see Table 1. The standarderrorin prices was
around16 to 22 percent of the mean price, and female prices were below
male prices. The price distribution was similar to that of contract
lengths, suggesting that price variance was as important as contract
length variance in explaining servant values.
However, the evidence also suggests that indenturedimmigrationwas
not a spot market and that competitive recruitingin Europe had some
effect on subsequent colonial prices. The positive relationshipbetween
service time and contract price, expected in a spot market,was not very
evident. The correlation coefficient between contract price and length
was -.06 in the 1745 sample and .25 in the 1771 to 1773 sample.
Secondly, 15 Pennsylvaniapounds equalledabout 8.6 pounds sterlingin
1745and 9.3 pounds sterlingin 1772.8 The rangeencompassedthe costs
incurred in recruiting, equipping, and transporting servants.9 This
findingsuggests excessive profits may have been competed away in the
recruitingprocess.'
7 The coefficients were significantat the .15 and .001 levels for the 1745 and 1771 to 1773
samples.
8
John J. McCusker, Money and Exchange in Europe and America, 1600-1775, A Handbook
(ChapelHill, 1978),pp. 185-86.
9 See Smith, Bondage, pp. 35-39; Galenson, WhiteServitude,pp. 251-52; MildredCampbell,
"English Emigrationon the Eve of the AmericanRevolution,"AmericanHistorical Review, 61
(Oct. 1955), p. 17; and R. J. Dickson, Ulster Emigration to Colonial America 1718-1775 (London,
1966),pp. 86-87. The freight cost was around3.5 to 6 pounds sterling. Addingin recruitingand
equippingcosts could raise the amountto 10 or 12 pounds sterling.These estimates of shipping
costs may not include returnsto uncertaintyor risk caused by servant default due to death or
disease which could cause the estimatedcost of shippingservantsto increase even more.
'0 Profits in the indenturedimmigranttrade can not be directly estimated with this evidence
because the cost of shippingservants was not recordedand the risk of servant default through
death,disease, and escape is unknown.For a systematiceffortto estimatethe profitsfromshipping
redemptionerservants see Farley Grubb, "Risk and the Rate of Return to Financing the
Immigrationof GermanServants to Philadelphia,"paperpresentedat the annualmeetingof the
EconomicHistory Association, Sept. 1985(mimeo).
Grubb
858
TABLE 1
PRICESAND LENGTHS OF BRITISHIMMIGRANTINDENTURECONTRACTS
IN PHILADELPHIA,1745AND 1771-1773
Number
Average ContractPrice
AverageContractLength
432
66
15.50 (2.57)
13.23(2.71)
4.44 (1.05)
4.14 (0.68)
584
248
15.22(3.28)
13.42(2.11)
4.13 (1.08)
3.97 (0.72)
1745
Males
Females
1771-1773
Males
Females
Notes: Standarderrors are in parentheses. Contract prices are in Pennsylvaniapounds and
contractlengths are in years.
Sources: George W. Neible, ed., "Servants and ApprenticesBound and Assigned Before James
Hamilton Mayor of Philadelphia, 1745," Pennsylvania Magazine of History and Biography, 30-32
(1906-1908);and "Recordof Indenturesof IndividualsBoundOut as Apprentices,Servants,Etc.
and of Germanand Other Redemptionersin the Officeof the Mayorof the City of Philadelphia
October3, 1771,to October5, 1773,"(unpub.ms. in the City Archivesof Philadelphia).Additional
informationfor the 1771-1773 sample was derived from Michael Tepper, ed., Emigrants to
Pennsylvania 1641-1819 (Baltimore, 1978), pp. 180-81.
AlthoughTable I does not offer much supportfor the efficient-market
hypothesis, it does not rule it out. The efficient-markethypothesis is a
statementabout expected prices, not actual prices. Efficientforecasting
does not mean perfect price prediction.Manyunpredictableevents may
have intervened between contract formationin Europe and subsequent
sale in the colonies. For example, colonial labor-marketconditions may
have changed unexpectedly between recruitmentin Europe and delivery in the colonies, particularygiven the four to six months it took
informationto make the roundtrip across the Atlantic. The rigorsof the
voyage may have also altered expected servant productivity.11Thus
shippersmay have found the value of the indenturesin their possession
unexpectedly changed before the colonial auction. Such events may
have introduced price variance into colonial-servantauctions.
The presence of substantial risks for merchants speculating in forward-laborcontracts does not imply that the market was inefficient.
Risks were informationcosts that affected decisions just like any other
cost. The presence of risks makes measuring the efficiency of the
market difficult. A model of indentured immigration must separate
predictablefrom unpredictablesources of price varianceto measurethe
degree to which the marketconformed to the efficient-markethypothesis. Such a procedure will also help determinewhether the variance in
contract prices or contract lengths best measured the differences in
servant human capital.
The evidence used to test the model was taken from the indentured
'"
For discussions of late eighteenth-centuryvoyage conditionson the North Atlanticsee John
Duffy, "The Passage to the Colonies," Mississippi Valley Historical Review, 28 (June 1951), pp.
21-38; and FarleyGrubb,"MorbidityandMortalityon the NorthAtlanticPassage:EvidenceFrom
Eighteenth-CenturyGermanImmigrationto Pennsylvania,"Journalof InterdisciplinaryHistory
(forthcoming).
Market for Indentured Immigrants
859
portionof the Philadelphiaimmigrantservant marketfor the years 1745
and 1771to 1773.12 The sample contained over 1,300 separate contract
sales. Philadelphia possessed a large and active market in contract
labor, perhaps the single largest in eighteenth-centuryNorth America.
Colonies south of Pennsylvaniahad shifted to reliance on slave labor by
the eighteenth century, and colonies north of Pennsylvania never
attractedmany immigrantservants.13 Buyers from as far away as South
Carolina,New Hampshire, and Kentucky purchasedservants in Philadelphia.14 The Philadelphia market was also unique among North
American colonies in that civil authorities periodically recorded the
salient features of each servant sale.
THE MODEL OF INDENTURED IMMIGRATION
Indentured immigrationis modeled as a competitive trans-Atlantic
market for forward-labor contracts.15 The first half of the model,
outlined in Table 2, involves the recruitmentmarket for servants in
Europe where all the contract parameterswere determined. Competitive equilibrium in the shipping market, equation 1, implies that
recruitersbid for servants until the expected colonial contract price of
each servant just equaled the cost of delivering that servant, thus
yielding zero economic profits. The price Europeanrecruitersexpected
to receive for the servants in the colonies depends on their forecast of
the net value of the colonial productivity of their servants over the
12
The Philadelphiarecords includedcontractsfor residentservantsand apprenticesas well as
for immigrantindenturedand redemptionerservants. Indenturedimmigrantswere distinguished
fromredemptionersby the fact that indenturesales were contracttransfersand so "assigned"by a
seller, otherthanthe servanthimself, to a buyer. Redemptionercontractswere formedon the spot
directlyby the servant.Indenturedcontractscommenceduponarrivalin portwhereasredemptioner contracts commenced upon sale. In the 1745 records roughly 87 percent of the immigrant
servantsused the indenturemethod and in the 1771to 1773records roughly30 percentused the
indenturedmethod.Residentsand immigrantswere separatedby the referencesto the originof the
servant.All of the indenturedimmigrantsin the 1745samplewere Irish. About 12.6percentof the
840 indenturedimmigrantsin the 1771 to 1773 sample were English with the rest being Irish.
AlthoughIrishand Germanimmigrantseach accountedfor about40 percentor moreof all servants
arrivingin this period,Germansused the redemptionermethodexclusively and so do not appearin
this study.
13 See Smith, Bondage, pp. 3-4; Galenson, WhiteServitude,pp. 117-68;Grubb,"Incidenceof
Servitude," p. 334; Gloria L. Main, "Marylandand the ChesapeakeEconomy, 1670-1720,"in
Land, et al., Law, Society, and Politics, pp. 140-44; Russell Menard,"From Servantsto Slaves:
The Transformationof the ChesapeakeLabor System," SouthernStudies, 16 (Winter1977),pp.
355-90; Peter Wood, Black Majority.(New York, 1974),pp. 131-66;RichardS. Dunn, Sugar and
Slaves (New York, 1972), pp. 47-83; Edmund S. Morgan, American Slavery American Freedom
(New York, 1975),pp. 295-315;andFarleyGrubb,"ImmigrantServantLabor:TheirOccupational
and Geographic Distributionin the Late Eighteenth-CenturyMid-AtlanticEconomy," Social
Science History, 9 (Summer 1985), pp. 249-76.
14 For the geographicdistributionof purchasersof immigrantservantswho arrivedin Philadelphia see Grubb,"ImmigrantServant Labor."
's The European recruitmentof indenturedservants appears to have been competitive, see
Galenson, White Servitude, pp. 97-98; and Smith, Bondage, pp. 1-18. The sale of indentured
Grubb
860
TABLE 2
A MODEL OF INDENTUREDIMMIGRATION
I. The EuropeanRecruitmentMarket
CompetitiveEquilibriumin the ShippingMarket:
DC = E(CP)
(1)
ContractFormationAsset PricingEquations:
E(CP) = foT E(VNP)exp(-rt)
E(VNP) = f(H,K)
(2)
(3)
dt
CompetitiveEquilibriumin the RecruitmentMarket:
DC = constant = E(CP) = g(T,H,K,r)
(4)
II. The Colonial MarketAuction
The EfficientMarketHypothesis:
CP = E(CP) + PRI + random error
CP = constant + g(T,H,K,r) + PRI + random error
(5)
(6)
SpecificationEstimated:
ln(CP) = constant + ailnL
r
] + a2H + a3K + bjPRI + random error
(7)
Where:
E(CP) = expectation at the time of recruitmentin Europeof the futurecolonial contractprice.
DC = delivery cost which is assumedconstantacross servants, and not a functionof (THK,r).
E(VNP) = expectation at the time of recruitmentin Europeof the futurevalue of the net
productivityof servants in the colonies.
T= contractlength determinedin Europe.
r = discount rate.
H = a vector of all servantcharacteristicsobserved at the time of recruitmentin Europe.
K = a vector of all contractparametersother than contractlength determinedat the time of
recruitmentin Europe.
CP = actual contractprice in the colonies.
PRI = a vector of post-recruitmentinformationwhich was unpredictableat the time of contract
formationin Europe.
a, b = estimatingcoefficients.
lengthof the contract, continuouslydiscounted, equation2. The expected net value of servant productivityis a function of fixed servant traits
and contract parameters, other than length, observed at the time of
recruitmentin Europe, equation 3.16 Finally, the evidence suggests that
servantsin Philadelphiaalso appearsto have been competitive.The 1745samplehad around500
servants,deliveredon over 30 ships, and marketedby over 75 agents. The 1771to 1773samplehad
around840 servants, deliveredby over 40 ship captains,and marketedby an even greaternumber
of agents. No colonial buyer purchasedover 1 percent of the servants in either sample. A direct
example of the spirited competition for immigrantcargoes can be seen in the transportation
contractsigned by 26 Germansgoingfrom Rotterdamto Philadelphiain 1756.Isaac and Zacharias
Hope, majorrecruitersin Rotterdam,contractedto ship these Germansfor 7.5 doblonseach, but
within the contract was also writtenthe followingcondition:"But if anyone agrees to take these
Germansfor less than the above-mentionedsum, Messrs. Isaac & ZachariasHope promiseto do
the same, except where it is plainlydone as spite workagainstMessrs. Isaac & ZachariasHope, in
which case they release the people from the contract, however in such case those who offer
cheapertransportationare to pay Messrs. Isaac & ZachariasHope for the expenses which they
incurredbefore the people arrivedin port." Otto Langguth,"PennsylvaniaGermanPioneersfrom
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 discussionof such indices see
SherwinRosen, "Hedonic Prices and ImplicitMarkets:ProductDifferentiationin PureCompeti-
tion," Journal of Political Economy, 82 (Jan. 1974), pp. 34-55; and Zvi Griliches, ed., Price
Indexes and Quality Change (Cambridge, Mass., 1971).
Market for Indentured Immigrants
861
the delivery cost was constant across all adult servants, which yields
equation 4, the competitive equilibriumin the European recruitment
market."7After considering the characteristics and expected colonial
value of each servant, the recruiterwhile in Europe would adjust the
negotiable contract terms through competitive bidding until each servant was expected to sell for the same price in the colonies, just enough
to cover the cost of delivery. The model of the European half of the
marketis basically consistent with the Galenson analysis.'8
The second half of the market, also outlinedin Table 2, is the colonial
auction where the actual contract price was determined.The efficientmarket hypothesis, equation 5, is formulatedby separatingthe actual
price into the part expected at the time of recruitmentin Europe, the
partdue to unpredictablechanges occurringbetween Europeanrecruitment and colonial sale, and an errorterm. Substitutingthe expressions
for the expected contract price from equation 4 into equation 5 yields
equation 6 which will allow testing of the efficient-markethypothesis.
Because the expected contract price is already embodied in the
constant term, all the information that went into formulating the
expected contract price (the g function) should add nothing to the
explanationof the variance in actual contract prices. Efficiencyimplies
that the estimated coefficients on the terms in the g function should be
jointly insignificant. Significantcoefficients on any of the g terms will
indicate areas in which recruiters experienced forecasting difficulties.
The particular specification estimated, equation 7, is a double-log
version of equation 6 where H, K, and PRI are modeled as multiplicative exponential vectors in the asset-pricingequation. Efficiency under
this specification entails that the a coefficients be jointly insignificant
and that the error term be random.
EMPIRICAL
RESULTS
Equation7 was estimated using the indentured-immigrant
portion of
the contract sales recordedfor the port of Philadelphiain the years 1745
and 1771to 1773. In these years the civil authoritiesrecordedthe salient
features of each contract sale: the price, date of sale, date of contract
17 Evidence on passengerfare structuresfor the late eighteenthcenturyis scarce. However, the
existing evidence indicatesthat all adult servantsabove 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 Ralph B. Strassburger, Pennsylvania German Pioneers, William J. Hinke,
ed., (Norristown,Pa., 1934),vol. 3, pp. 112-14, 131-34, 137-38;and "PassengerList of the Ship
'Elizabeth', Which Arrived at Philadelphia in 1819," Pennsylvania Magazine of History and
Biography,25 (1901),pp. 255-58. The impressionof a constantfare structureacross adultsis also
conveyed in immigrantdiaries. See for exampleJuliusF. Sachse, "A Missive FromPennsylvania
in the Year of Grace 1728,"PennsylvaniaGermanSociety, 28 (1909),p. 18;GottliebMittelberger,
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 structureof passagefares 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
parameteradjustedto reach equilibriumin the recruitmentmarket.
Grubb
862
TABLE
3
CONTRACT PRICE DETERMINATION IN THE PHILADELPHIA MARKET FOR
INDENTURED IMMIGRANTS, 1745 AND 1771-1773
Explanatory Variables
Constant
I - exp(-r7)
In
Number
of
Cases
498
498
r
K Vector
Training provided
17
5
No freedom dues
I
H Vector
Females (unmarried)
2.7131***
(.1220)
0.0652
(.1206)
26
66
0.0485
(.1319)
840
3
0.2032*
(.1031)
-0.0475
(.1609)
(.2948)
-0.0389
(.0787)
-0. 1549***
(.0344)
675
-0.0055
(.1609)
248
-0.0680***
(.0185)
8
840
498
5.2488
(9.7469)
0.3454*
(.0602)
-0.5604*
Time of Arrival Year
X the order of sale
840
1771-1773
Coefficients
0.0350
(.0882)
Married with a joint contract
10-4
Number
of
Cases
5
Employed at a skilled
trade
Extra freedom dues
Servant as his own marketing
agent
Sold by the ship's captain
1745
Coefficients
0.3000
(.9000)
0.0391 *
(.0270)
0.0252
(.0795)
0.1140**
(.0367)
-0.1096*
(.0822)
-0.0016
(.0055)
237
0.0007
(.0227)
302
-0.0189
(.0215)
Port of Departure
Ulster
246
South Ireland
247
-0.0322*
(.0244)
-0.0316*
(.0239)
0.2051***
(.0347)
0.1083***
(.0406)
Fall
224
Winter
14
Spring
75
Summer
Bristol
65
London
41
PRI Vector
26 additional variables
R2
Corrected R2
F-statistic
Durbin-Watson statistic
Number of observations
.277
.131
.094
2.62***
2.02
498
.257
13.59***
1.88
840
Market for Indentured Immigrants
863
commencement, origins of the servant, contract length, any other
special contract stipulations, the names of the principalsto the transaction, and the residence of the colonial purchaser. Many of these
variables were not common to both bodies of evidence, and separate
regressions were performed on each sample. The description of the
*
Indicatessignificanceabove the .2 level.
Indicatessignificanceabove the .05 level.
*** Indicatessignificanceabove the .001 level.
a Includes variables relating to the time needed to sell the contract in the colonies and the
geographicresidence of the purchaser. The results and interpretationof these coefficients are
availablefrom the authorupon request.
Notes: Standarderrorsare in parentheses.The methodof estimationis ordinaryleast squares.The
dependentvariableis the naturallogarithmof the contract price in the colonies denominatedin
Pennsylvaniapounds.
**
Independent Variables
InL -
Ip
r
: discountedlog of contractlengthmeasuredin years wherethe discountrateis
25 percent.
Trainingprovided:equalsone if the contractstipulatedemployerprovisionof occupationaltraining
at a skilled trade and zero otherwise.
Employed at a skilled trade: equals one if the contract mentionedthat the servant was to be
employedat a skilled trade and zero otherwise.
Extra freedom dues: equals one if the contractstipulatedthe provisionof dues at the end of the
contractabove the customarylegal level and zero otherwise.
No freedomdues: equalsone if the contractstipulatedwaivingthe rightto customarylegalfreedom
dues and zero otherwise. The zero categoryfor the two freedomdues variablesis the provisionof
legal or "customary"freedomdues.
Servantas his own marketingagent: equals one if the servantwas not directly "assigned" by an
agent to a buyer and zero otherwise.
Sold by the ship's captain:equals one if the contractwas "assigned" to a buyer directlyby the
captainof the ship on which the servant sailed and zero otherwise.
Female: equals one if the gender of the servant's first name was thoughtto be female and zero
otherwise.
Marriedwith a joint contract:equals one when a husbandand wife were sold jointly underone
contractwith the same length and zero otherwise. The zero categoryfor the genderand married
variablesis single adult male.
Year: the numericalyear in which the servant arrivedand was sold.
Orderof sales: order in which the contracts were recordedas purchased, I to 498, in the 1745
market.
Fall: equals one if the contract was recorded as sold duringthe months of Septemberthrough
Novemberand zero otherwise.
Winter:equals one if the contractwas recordedas sold duringthe monthsof Decemberthrough
Februaryand zero otherwise.
Spring:equals one if the contractwas recordedas sold duringthe monthsof MarchthroughMay
and zero otherwise.
Summer:equalsone if the contractwas recordedas sold duringthe monthsof JunethroughAugust
and zero otherwise. The zero category for the seasonal variablesis Summerfor the 1745sample
and WinterthroughSpringfor the 1771-1773sample.
Port of Departure:equals one if the servant came from the port or region indicatedand zero
otherwise. Ulster ports are Londonderry,Belfast, and Newry. The South Irelandports are Cork
and Waterford.The zero categoryfor all ports is beingfrom Dublinorjust havingthe designation
"Ireland" in the record (10 observations) or where the port of origin was not recorded (61
obversations).
Sources: See Table 1.
864
Grubb
variables, their construction, and the regression results are given in
Table 3.
At the time of contract formation in Europe recruiters would have
informationon the first fifteen and possibly the first nineteen variables
listed in Table 3. The first seven were negotiated contract parameters:
the discounted contract length, the provision of trainingor employment
at a skilled trade, adjustmentsto the dues paidat the end of the contract,
and who would be selling the servant. The second eight were observed
servant characteristics and circumstances: gender, marital status, and
time of arrival. The last four were the ports of departure.
The age, physique, and perceived health of the servants, importantto
determiningtheir expected colonial value and observed by recruitersin
Europe, were not recorded by the civil authorities. These variables,
however, were embodied in the contract parameters, principally the
length. It was through adjusting the contract length that recruiters
arbitragedthe value of this information.Therefore, the contract length
serves as a proxy for age, physique, and any other observable servant
characteristicsnot directly controlled in Table 3.19
The market was relatively efficient in arbitragingprofitableinformation known at the time of servant recruitmentin Europe. The amountof
contract price variance explained by all the variables in Table 3 was
small, 13 percent for the 1745sample and 28 percentfor the 1771to 1773
sample. And the variables representinginformationknown at the time
' The rate assumed to discount all contractswas 25 percent;the results provedto be relatively
invariantto rates rangingfrom 5 to 50 percent. The properdiscount rate was not obvious. Other
studies have simplyassumeda rate withoutmuchjustification.For example,the Galensonstudies,
see fn. 6, implicitlyassumed a zero discount rate, and Heavner, "IndenturedServitude,"pp. 7375, assumed a 15 percent discount rate. A crude measureof the discount rate of new immigrant
servantcontractswas derivedby comparingthe averagepriceto the contract-lengthratiobetween
residentand new immigrantservants. The measureassumed that the averageprice to lengthratio
should be constant across similar servants; any differenceswould thereforegenerate a residual
discount rate:
(CPRITR)= (CPIITI)I(l+ r)TI-TR
Where:
CPR = average resident servant prices
CPI = average immigrantservant prices
TR = average resident contract lengths
TI = average immigrantcontract lengths
r = discount rate
Applying the formula to the evidence cited in Table 1 yielded a discount rate of 25 percent,
independentof the group of resident servants: resold immigrantcontracts, local residents who
voluntarilyentered service, or local residentsforced into service by debt. The values of immigrant
contracts were discounted relative to resident servant contractsfor several reasons: immigrants
experiencedhighermorbidityand mortality,took longerto adaptto the new tasks requiredof them
in the New World, and may have been more likely to run away because most of the contract's
compensationwas alreadypaid in the form of passage to the colonies. If the 25 percentwas a risk
premium,then the appropriaterate would be 25 percentplus the marketrate. But because the 25
percent may also capture some real productivitydifferencesbetween labor in the first year and
subsequentyears of the contract, the 25 percent rate was used as a best guess.
Market for Indentured Immigrants
865
of recruitment,the major contract parameters,servant characteristics,
and market conditions listed in the first fifteen variables in Table 3,
explained only about 2 percent of the variance in contract prices. As a
group, these fifteen variables were jointly insignificant.20In addition,
the ratherlargeand unexplainedresidualvariancein contractprices was
relatively random over the chronological order of contract sales, as
observed in the residual plots and measured by the Durbin-Watson
statistic. Thus most of the realized fluctuations in contract prices
appears to be unrelated to conditions known at the time of contract
formation because the price differences relating to these conditions
were arbitragedaway in the competitive recruitmentprocess.
On the individual level, recruiters in the 1745 sample completely
arbitragedaway the value of informationpertainingto servant training,
extra freedom dues, who would be the sales agent, the order of sale
within the seasonal market, and the other informationembodied in the
contract length, such as age, physique, and health. Recruiters in the
1771 to 1773 sample completely arbitragedaway the value of information pertainingto extra freedomdues, who would be the sales agent, and
the seasonal and yearly pattern of prices.
The natureof the arbitrageprocess was apparentin several cases. For
example, recruiters expected contracts associated with occupational
training to have a relatively lower colonial value. Therefore, they
negotiated these contracts to be 21.3 percent longer on average. The
extra service time just offset the trainees' lower value, and their
contracts sold for the same price as other contracts.2' Therefore,
merchants were fully compensated and were indifferent to shipping
these less-productive servants.
Another example involved the order of sale in the 1745 sample.22
Controllingfor the season of arrival, the order of sale indicates trends
within the main fall and spring markets. Merchantswere keenly aware
of the competitive effects of arrivaltiming, as illustratedby a letter sent
from Philadelphiato Irelandin 1766:
20
For the 1745samplethe partialF-statisticwas 1.09whichindicatedthatthejoint insignificance
of these variablescannot be rejectedwith confidence,a .3 significancelevel. For the 1771to 1773
sample the partial F-statistic was 1.78 which also indicatedthat their insignificancecannot be
rejectedwith confidence,a .18 significancelevel. However, for the 1771-1773samplethis does not
includethe ports of departurewhich if includedwould raise the partialF-statisticto a significant
level.
21 This adjustmentmay have been caused by the lower age and productivityof the trainees
relativeto the averageservant.The effect was also consistentwith the argumentthat theirtraining
was marketableconfirmmspecific) and so the cost should have been borne by the servant. The
servantrepaidthe master'strainingexpenses by servingfor a longerthannormalperiod.See Gary
S. Becker, Human Capital(2nded., Chicago, 1980),pp. 19-26, for a discussionof nonfirmspecific
humancapital. Althoughthe 1771-1773sample does not have any contracts stipulatingtraining,
severalindenturedcontractsrenegotiatedafterarrivalindicatedthat servantstradedan extra year
of service for includinga new trainingprovisionin their contract.
22 All the immigrantservants arrivingin 1745 were included in the sample in Table 3. This
variablewas not used in the 1771-1773samplebecause this markethad manyother redemptioner
866
Grubb
Irish servants will be very dull sale such numbershave alreadyarrivedfrom Different
ports & many more expected, that I believe it will be over done, especially as several
Dutch vessels are expected here, which will always command the Market. Captain
Power I believe has near sold all his, he being pretty early.23
Merchants arriving late in the seasonal market carried servants with
contracts4 percent longer on average than those deliveredearlierin the
season. The adjustmentwas apparentlyenough to maintaina constant
price over each seasonal market.
Recruiters expected servants arrivingin the main fall market to be
less valuable than servants arrivingin the springmarket.Springarrivals
were offered shorter contracts than fall arrivals. In the 1745 sample
springcontracts were 3.3 percent shorter;for 1771to 1773they were 8.3
percent shorter. Fall was the only season when German servants
arrived in great numbers. Relatively longer contracts offered British
servants arrivingin the fall may have been compensationfor merchants
having to sell in a more competitive seasonal market.24However, this
adjustment was not enough to arbitrage seasonal price differences
completely in the 1745 sample in which springarrivalssold for prices 8
percent higher than fall arrivals. But by the 1771 to 1773 sample the
increased lengtheningof fall contracts relative to spring contracts had
completely arbitragedaway the seasonal price difference.
In several cases recruiters experienced difficulty in forecasting the
value of available information and failed to fully arbitrage profit
opportunities. The most important involves the price difference between males and females. Ex post, recruiterslost by shippinga female
instead of a male. The average female price was 14.4 and 11.8 percent
below the average male price in the 1745 and 1771 to 1773 samples.25
The approximateloss in shipping66 females in the 1745marketand 248
females in the 1771to 1773market,in terms of lost opportunitiesto ship
males, was 145 and 445 Pennsylvania pounds.26Recruiters actually
allowed females to have shorter contracts than males, by a quarterof a
year on average, in the 1745 sample. Recruiters mistakenly expected
servantsarrivingat the same time. Thus the interpretationof this variablefor the 1771-1773sample
would be unclear.
into PennsylvaniaThroughthe
23 Quotedin FrankR. Diffenderffer,"The GermanImmigration
Portof Philadelphia,and 'The Redemptioners',"PennsylvaniaGermanSociety, 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 Philadelphiamarket. The
Philadelphiamarketwas uniqueamong the colonies in that almost half of the immigrantservants
were Germanswho arrivedexclusively in the fall.
25 A lower contractprice would also result if females were cheaperto transportor experienced
lower voyage mortality.Existingevidence suggests this was not the case. See fn. 17;and Grubb,
"Mortalityand Morbidity."
26 The comparison assumes that recruiters could make substitutionson the marginwithout
affectingthe cost of recruiting.To fill the last few spots on the ship before sailing,recruitersmay
have accepted low-valuedservantsor offeredshortercontractsthus loweringthe profitson these
last servants.
Market for Indentured Immigrants
867
females to be relatively more valuable.27The modest narrowingof the
male-to-female price differential between the 1745 and 1771 to 1773
samples was accomplished by lengtheningfemale contracts relative to
males by 10.4 percent between the two periods. The difficulty in
forecastingthe differencein marketvalue between males and females in
both samples may explain the occasional advice merchantssent to their
European recruiters to "send no more women.' 28
There were several minordeviations from perfectly efficientforecasting.29For example, the adjustmentto contractlength in the 1771to 1773
sample was incomplete. A one-year increase in service time, from four
to five years, raised the contract price by 5 percent. In response to the
observed age, physique, or health of the servant, for which the contract
length served as a proxy in Table 3, recruitersslightlyovercompensated
for below-average servants by excessively lengtheningtheir contracts.
Finally, the price variance relating to different ports of departurein
the 1771to 1773 sample may have representedan additional,but minor,
source of forecast error. However, because the cost of delivery and the
marketstructureof recruitingmay not have been constant across these
ports, the interpretationof these regression results must remain speculative. The reference port was Dublin, and servants from Irish ports
both north and south of Dublin sold for 3.3 percent less, whereas
servants from London sold for 10 percent more, and servants from
Bristol sold for 20 percent more than Dublin servants.30
Different shipping costs, as measured by the sailing distances to
Philadelphia, could not explain all estimated price differences. Contracts for Bristol servants were 15.8 percent longer on average than
those for servants from Dublin or London, and because Bristol servants
were sold for prices above London servants, recruitersin Bristol may
have underestimatedthe relative value of their servants. Ulster servants
had 7.3 percent shorter contracts, and servants from South Irelandhad
4.1 percent longer contracts than Dublin servants. Prices for both
27 The differencebetween male and female contractlengthswas the same as foundby Galenson,
WhiteServitude,p. 104, for English servants leaving London between 1718and 1759.Eitherthe
relative value of male versus female servants was changingby 1745, at least in the Philadelphia
market,or recruitershad overestimatedthe relative value of females for some time.
28 See Diffenderffer,"The GermanImmigration,"p. 227; and SharonV. Salinger," 'Send No
MoreWomen:'Female ServantsIn Eighteenth-Century
Philadelphia,"PennsylvaniaMagazineof
Historyand Biography, 107 (Jan. 1983),pp. 29-48.
29 For example, prices for marriedservants were 10 percent lower, and prices for those with
tradeskills were 22 percent higher,than the 1771-1773average. By waivingthe rightto freedom
dues, a lower price of over 50 percent resulted in the 1745 sample. However, these cases only
accountedfor 14contractsout of 1,338and so are of minorimportance.The difficultyin forecasting
the value of some of these infrequently-usedcontractstipulationsmay explain why servantswho
wantedthese conditionstended to opt for the redemptionercontractform. See Grubb,"Redemptioner Servants."
30 The Bristol coefficientwas significantlydifferentfrom the London coefficientin Table 3 with
an F-statisticof 3.74 and significantat the .05 level. The Ulster and South Irelandcoefficientswere
not significantlydifferent.
868
Grubb
groups were below those for Dublin servants, thus recruitersin Ulster
may have slightly overestimated the value of their servants while
recruitersin South Ireland may have slightly underestimatedthe value
of their servants, relative to Dublin servants.3'
CONCLUSIONS
Merchantstransportingindenturedservants from Europe to America
were speculating in forward-labor contracts. They guaranteed the
contractterms to the servant before sailing and then sold the contractin
the colonies at auction. Merchantshad to forecast the colonial price of
each contract to successfully compete for servants in Europe. Separating predictable from unpredictablesources of price variance indicates
that recruitersused informationknown at the time of recruitmentwith
relative efficiency. They successfully arbitragedknown profit opportunities relating to expected differences in colonial servant values. The
minorareas of forecast errorwere between males and females, on a few
infrequently-used contract stipulations, and across different ports of
emigration. Recruiters slightly overestimated the relative value of
female, Ulster, Bristol, and marriedservants. And they slightly underestimated the relative value of skilled and South Irish servants. The
large variance in colonial auction prices was predominantlyrelated to
unforeseeable events that occurred after the voyage had begun. Thus
the variancein contract parameters,principallycontractlength, was the
best measure of permanent differences in servant human capital. And
the variance in contract prices was the best measure of unexpected
changes in servant values induced by events such as a traumatic
voyage. The degree to which the trans-Atlanticlabormarketconformed
to the efficient-markethypothesis, given the substantiallevel of risk and
uncertainty, is suggestive of the general performance of American
colonial markets.
3 The contract price and length adjustments across ports measured the relative market
evaluationof servant humancapitalbetween groups. For example, because Londonservantshad
the same contractlengthas Dublinservantsbut sold for higherprices, the humancapitalof London
servants must have been more highly valued in the colonial marketthan were Dublin servants.
Similarly, because servants from Ulster and South Ireland sold for the same price but Ulster
servantshad shortercontracts, the humancapitalof Ulster servantsmust have been more highly
valued in the colonial marketthan were South Irish servants.