Employment and Unemployment in the 1930s

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The Great Depression is to economics what the Big Bang is to physics. As an event, the Depression is largely synonymous with the birth of modern macroeconomics, and it continues to haunt successive generations of economists. With respect to labor and labor markets, these facts evidently include wage rigidity, persistently high unemployment rates, and long-term joblessness. Traditionally, aggregate time series have provided the econometric grist for distinguishing explanations of the Great Depression. Recent research on labor markets in the 1930s, however, has shifted attention from aggregate to disaggregate time series and towards microeconomic evidence. This shift in focus is motivated by two factors. First, disaggregated data provide many more degrees of freedom than the decade or so of annual observations associated with the depression, and thus may prove helpful in distinguishing macroeconomic explanations. Second, disaggregation has revealed aspects of economic behavior hidden in the time series but which may be essential to their proper interpretation and, in any case, are worthy of study in their own right. Although the substantive findings of recent research are too new to judge their permanent significance, I believe that the shift towards disaggregated analysis is an important contribution. The paper begins by reviewing the conventional statistics of the United States labor market during the Great Depression and the paradigms to explain them. It then turns to recent studies of employment and unemployment using disaggregated data of various types. The paper concludes with discussions of research on other aspects of labor markets in the 1930s and on a promising source of microdata for future work. My analysis is confined to research on the United States; those interested in an international perspective on labor markets might begin with Eichengreen and Hatton's chapter in their edited volume, Interwar Unemployment in International Perspective, and the various country studies in that volume. I begin by reviewing two standard series of unemployment rates, Stanley Lebergott's and Michael Darby's, and an index of real hourly earnings in manufacturing compiled by the Bureau of Labor Statistics (BLS). The difference between Lebergott's and Darby's series, which is examined later in the paper, concerns the treatment of persons with so-called "work relief" jobs. For Lebergott, persons on work relief are unemployed, while Darby counts them as employed. Between 1929 and 1933 the unemployment rate increased by over 20 percentage points, according to the Lebergott series, or by 17 percentage points, according to Darby's series. For the remainder of the decade, the unemployment rate stayed in, or hovered around, double digits. On the eve of America's entry into World War Two, between 9.5 and 14.6 percent of the labor force was out of work, depending on how unemployment is measured. In addition to high levels of unemployment, the 1930s witnessed the emergence of widespread and persistent long-term unemployment (unemployment durations longer than one year) as a serious policy problem. According to a Massachusetts state census taken in 1934, fully 63 percent of unemployed persons had been unemployed for a year or more. Similar amounts of long-term unemployment were observed in Philadelphia in 1936 and 1937. Given these patterns of unemployment, the behavior of real wages has proven most puzzling. Between 1929 and 1940 annual changes in real wages and unemployment were positively correlated. Real wages rose by 16 percent between 1929 and 1932, while the unemployment rate ballooned from 3 to 23 percent. Real wages remained high throughout the rest of the decade, although unemployment never dipped below 9 percent, no matter how it is measured. From this information, the central questions appear to be: Why did unemployment remain persistently high throughout the decade? How can unemployment rates in excess of 10 to 20 percent be...
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