How did factories benefit from having many workers concentrated in cities?

Factories benefited from the concentration of workers in cities primarily by maximizing internal economies of scale and external economies of agglomeration. By massing a large labor force in industrial towns, manufacturers were able to minimize the costs associated with overcoming frictions in transport and communications.1

This urban concentration allowed for the localization of differentiated but functionally integrated work processes near essential sources of power, such as coal and water. Furthermore, the migration of people from the countryside—driven by the mechanization of agriculture and the resulting decrease in the need for rural labor—provided a consistent supply of workers for the factory system. This transition helped establish a free market in labor, which was a fundamental component of the industrial socioeconomic order.12