I think that in part we've been talking past each other. My objection is to the oft-expressed view that the CSA was just waiting to fall in a heap based on
internal pressures. My view is that the CSA had plenty of problems, but that overall it would probably continue as a viable entity,
except for potential external pressure.
If slavery was cheaper (as entire system, not regarding individual having choice between slave workers or hired workers), then why Northern states outperformed South economically?
It was cheaper to slave owners, because system was subsidizing them at expense of everyone else.
In 1860 the per capita incomes (total population) of the South was roughly comparable or superior to the Northern states from Ohio westward. The southern Atlantic states were slightly below the average of the northwestern states, but the remaining Southern states were higher than the average of the northwestern states.
Only the Northeastern states (Pennsylvania to Maine) had a notably higher per capita income. And the main reason that their per capita income was higher was because they had a significantly lower fertility rate than the rest of the USA. They had a smaller percentage of their population being below working age, and a greater portion of their population as working age, hence their per capita incomes were notably higher.
How did poor southern white man benefit from slavery? Sure, cotton was cheaper, but often the only job around was slave-catching.
Poor southern white men benefited because, on average, the per capita income for the
free population was higher than it was in most of the North. (Considerably higher than the Northwest, not very far behind the Northeast after allowing for differences in demographics). Yes, there were some poor white southerners who struggled to find any employment, but on the whole they managed relatively well.
To the Southern mindset of the time, it was the higher per capita income for free population which mattered. Lower "wages" for slaves (i.e. what needs to be spent by the owner to keep slaves functioning - food, clothing etc) flowed through into higher wages for free workers.
Weren't they competing for labour, as in higher-bidder-bough-the-slaves?
Of course, all over the world line between bourgeois industrialists and aristocratic landowners was thin, but they had their unique leanings, and differing interests.
The wealthier classes were competing with each other for labour, but they were not in class competition between urban capitalist and rural landowner. A few individual planters may have been ideologically committed to "ye old Southern rural lifestyle". However, that view was not deep-rooted, and was easily malleable based on changes in economic circumstances. The example of the 1830s/1840s - when suddenly everyone became keenly interested in manufacturing and urban pursuits because cotton and tobacco prices were low - shows how they would likely adapt to future cotton price depressions. (And the one coming between 1860-1880 was a massive cotton price depression.)
This would become prominent only after few decades, when due to technological advancement factory work would become too difficult for illiterate slave. Urban capitalist would want to educate slaves enough to work with new tools, landholders would object.
My impression of the kind of factory work and mass production that was early twentieth-century manufacturing (e.g. Henry Ford's assembly line) was that it did not require significant literacy. The way in which tasks were broken down in Ford's assembly line (in Ford's case, for immigrant workers who were largely illiterate
in English) is a good parallel for how manufacturing would work with slaves who were not meant to be literate. (A few Southerners taught their slaves literacy anyway, of course. But not very many.)
I was implying there might develop one over time in surviving-alt-CSA, not that there was in OTL-CSA. Okay, there was no white proletariat, and I doubt they would all fill managerial positions. That begs the question: If whites were majority in South, and most blue-collar jobs was taken by slaves, wasn't there a large number of unemployed uneducated poor whites, who were either unemployed, living on sustenance farming, or doing slave patrols (last which were not useful jobs, since most countries did fine without slaves or slave-catchers)
As per above, the average income for
free workers were reasonably high in the South. There was some unemployment in some periods, but on the whole the South had a chronic long-term labour shortage, largely due to the relative lack of immigration. (Which as an aside, was due both to the presence of slavery and worse disease environment in the South).
What I suspect would happen would be a segregation by role (supervisory/specialist positions for whites) and/or by industrial sector (e.g. in OTL, the post-ACW South went mostly textiles for whites, ironworking for blacks). This is an extension of the existing trends which happened in the antebellum South.