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Did the North's population outnumber the South, or merely have more men available to be conscripted into the army to fight?
The answer to this question is less about industrialisation and more about the availability of qualified men able to be conscripted into the army to fight.
The southern states had a totally different economy to the north and was based primarily on slave labour. This slave labour, consisting mostly of African-American (is that the correct term?) descent were not available to join the army and fight. It's true the confederate Army did enlist some slaves towards the end of the war, but at the beginning the Confederate Army consisted mostly of non-slaves.
This is the reason for the larger Union Armies compared to the Confederate ones.
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There were more people living in the North mostly due to better climate, migrations, and urbanisation -- see the 1860 census or wikipedia. It was much more industrialised than the South. Bruce Catton and Shelby Foote are good sources if you wanted to learn more about the American civil war.
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The preponderance of 22 (later 24) Union states over the 11 Confederate states made things very difficult for the latter. Even so, it was a fairly close issue, and the Union needed every advantage. If a few more states had actually sided with the Confederacy, the outcome might have gone the other way.
President Lincoln famously said, "I hope to have God on my side, but I must have Kentucky...To lose Kentucky is almost to lose the whole game." http://opinionator.blogs.nytimes.com/2011/05/07/bluegrass-blues-and-grays/
Regarding the German-Amerioans who "held the fort" for the Union in Missouri, Grant said, "Recapturing St. Louis would have been a terrible job a most difficult task to give to any military man. Instead of a campaign before Vicksburg, it would have been a campaign before St. Louis." (Joseph Wandels, "The German Dimension in American History.")
As to why the Union enjoyed such a preponderance, one explanation can be found in my answer to this question. What did sectionalism have to do with the American civil war?
Also, I've noticed that "cold" parts of the country (compared to Richmond, Virginia), tended to be pro Union (including mountainous regions in Southern latitudes), while "hot" regions (again compared to Richmond), tended to be pro Confederacy, with the notable exception of California. To test this theory, I asked this question. What are exceptions to the hypothesis that "climate determined "regional" loyalties in the U.S. Civil War"?
Basically, there were a bunch of "mini civil wars in Border States like Kentucky and Missouri, which went in favor of the Union. (And I'd include latecomers Kansas and West Virginia in the mix; the exception was Tennessee, where West and Middle Tennessee "outvoted" East Tennessee and kept that state in the Confederacy.) Then the border states joined the nothern states in crushing the South.