Why does Betsy leave the mill in Lyddie?

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Betsy leaves the mill because she is too sick to work and wants to go to college.

Betsy is a factory worker and a friend of Lyddie’s.  She is interested in Lyddie right away.  Lyddie shares a bed with Betsy.  She likes to read novels, and teaches Lyddie how to read better.  Lyddie really enjoys Oliver Twist because she relates to the character.

Betsy admits to Lyddie that she is interested in going to college.

She, too, was saving her money, she confessed quietly to Lyddie and asked her not to tell, to go for an education. There was a college out West in Ohio that took female students‐a real college, not a young ladies' seminary. (Ch. 11)

Betsy tells them one day that she is worn out. She is interested in signing the petition because she is tired of longer and longer work days.  She is more interested in going to college.  As soon as she saves up her money, she plans to go.  She has been putting her brother through Harvard already.

"If they dismiss me, I'd have to stop stalling and blathering and get myself to Oberlin College and a new life." By now, Lyddie was propped up on her elbow listening, torn between pride for Betsy and horror at what she was proposing. "So, you're awake after all, our sleeping beauty." (Ch. 13)

Betsy has a bad cough.  She has nothing to lose, so she signs the petition.  This means that she is dismissed and cannot work in the factory again, but it is too hard for her anyway.  She has to leave the mill for good.  She does not like the hospital because it is too expensive.

Betsy may never have gotten to college.  She could have died from the illness, but either way she did not have enough money to go to college at the time she quit and being sick cost her money.

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Chapter 14 is mainly focused on Lyddie's increasingly selfish nature. She is the factory's best worker and consequently has been assigned the task of training a new worker.  By the end of the first day of training, Lyddie is so frustrated with her pupil that she tells the boss that the new worker is ready for her own loom. Lyddie does this just to avoid the responsibility of additional training even though she knows her decision is dangerous.  

Another event of chapter 14 is the petition being passed around for shorter work days. Betsy does sign it, which could cause her to get fired and black listed. Other girls that signed were let go and prevented from finding new jobs, but Betsy wasn't dismissed for her signature.  Marsden says that Betsy is in poor health, and she was let go because of her cough.  

Her cough is more worrisome than a cold or flu, though. As the above post mentioned, Betsy likely has contracted tuberculosis.  Severe coughing could be a variety of things, but coughing up blood is a big indicator for TB. Tuberculosis is also contagious,  so getting rid of Betsy protects the rest of the factory workers. At the time the novel takes place, tuberculosis is a death sentence for Betsy.  

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Betsy is sick with tuberculosis, or TB. She becomes increasingly sick, first stopping work, then being sent to the hospital. Eventually her uncle comes to pick her up and take her home. She claims that she will be back next year, but Lyddie knows she won't - she'll never be strong enough again to work in the mill.

The book doesn't specifically state that Betsy had tuberculosis, but the symptoms described point to what we now know as TB. Coughing up blood is a big symptom of TB.

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