Unemployment and real wages in the great depression.
Solomou, Solomos ; Weale, Martin
This article uses a dataset covering ten advanced economies
(Australia, Belgium, Canada, France, Germany, Netherlands, Norway,
Sweden, United Kingdom and the United States) to explore the role of
real wages as an influence on employment and unemployment in the Great
Depression and more generally in the 1920s and 1930s. The distinction
between employment and unemployment movements during the Great
Depression helps to clarify the role of supply side influences on the
national heterogeneity of unemployment increases during the Great
Depression. We find little general econometric evidence for the idea
that movements in product wages had strong influences on employment
either during the period of rising unemployment associated with the
depression of the 1930s or more generally with the data which exist for
the 1920s and 1930s.
Keywords: Great Depression; unemployment; employment; real wages
JEL Classifications: N 12; N 14; E24; E32
Introduction
One of the most striking aspects of the recent recession has been
that, at least so far, unemployment has risen much less than might have
been expected given the contraction to output. With the clear exception
of the United States, the increase in unemployment in the advanced
countries has been relatively modest and in Germany, despite a large
contraction to output, unemployment has scarcely risen at all. The
differences with earlier depressions has been emphasised in much of the
literature.
A continuing and general area of debate about unemployment is the
role of real wages as a causal factor. In this article, using data from
a number of advanced economies, we explore the role of real wages as an
influence on employment and unemployment in the Great Depression and
more generally in the 1920s and 1930s. The paper is therefore a
complement to studies such as Holland, Kirby and Whitworth (2010) and
OECD (2010) which explore the differences between countries'
experiences of employment and unemployment movements in the current
depression. (1) A general conclusion from both sets of studies is that
wage flexibility and a willingness to adopt part-time working have been
important factors behind the generally modest increase in unemployment.
We explore the role of real wages in determining the levels of
unemployment during the Great Depression.
We begin by providing a review of some of the literature to date.
We then discuss the relationship between employment and unemployment
movements during the Great Depression. We follow this with a theoretical
framework to identify the sort of effects which we would hope to observe
on the assumption that real product wages are drivers of unemployment.
This is followed by two further empirical sections, the first looking at
the relationship between real product wages and productivity, employment
and output changes during the period of rising unemployment associated
with the Great Depression (which was not, of course, synchronised across
the economies we study). The second looks at long-run relationships
between real wages and productivity using the time-series data for each
country in our sample.
Interwar unemployment: a survey of the comparative literature
The literature on interwar unemployment is extensive. In this
section we provide a review of some of the literature that is relevant
to the focus of our paper on the Great Depression episode. The first
point to make is that most of the literature deals with national
experiences. Eichengreen and Hatton (1988) provide a set of national
case studies. More recently the experience of Germany has been
considered by Dimsdale et al. (2006) and there has been extensive
research on other economies, including Australia (Dimsdale and
Horsewood, 2002) and the Scandinavian economies (Topp, 2008; Grytten,
1995).
A more limited literature has followed a comparative approach. The
work by Eichengreen and Sachs (1985) suggests that during the Great
Depression the world economy can usefully be divided into a number of
distinct policy blocs: those that devalued and came off gold in the
early 1930s and the 'Gold bloc', a group of countries that
remained committed to the fixed gold parity they had established in the
1920s. The cross-sectional differences in the economic performance of
these exchange rate policy zones suggest that devaluation had a positive
effect on economic recovery in the 1930s by generating a Keynes effect on real wages--the inflationary effect of devaluation moderated real
wage growth in the countries that devalued in the 1930s resulting in
favourable supply-side effects on recovery over the period 1929-35. The
assumption behind the Eichengreen and Sachs result is that nominal wage
inertia propagated the depression and falling employment in the
depression years before the policy reactions of devaluation. These
results have been shown to be applicable to a wider set of countries in
the work of Bernanke and Carey (1996) who extended the Eichengreen and
Sachs sample from a 10-country cross section to 22 countries. A key
result of Bernanke and Carey is that over the years 1929-31, 1929-32 and
1929-33 real wages moved counter-cyclically - with real wages between 20
and 40 per cent higher than the level of 1929. However, Eichengreen and
Sachs and Bernanke and Carey both use wholesale prices as deflators and
this choice may drive their results. (2) Indeed the use of wholesale
prices as a deflator turns out to be a major problem in the study of the
interwar labour market; in terms of the economic theory of the demand
for labour it is necessary to consider the cost of labour to the firm
and this requires measuring own product real wages. The absence of a
suitable price deflator makes it difficult to draw firm conclusions from
these early studies. Real wage indices constructed from these deflators
show a rapid increase of real wages between 1929 and 1932 before
stabilising or falling between 1932 and 1936. However, the use of the
wholesale price index as a deflator is seriously flawed; wholesale price
indices reflected movements in both input costs and costs of unit value
added but it is only the latter that is applicable to the measurement of
own product real wages in the economy as a whole. The distortions caused
by using these indices are particularly severe in the interwar period due to the volatility of raw material prices. One recent attempt to deal
with this problem is the work of Madsen (2004) who used final product
prices to track the path of real wages for twelve countries. When real
wages are appropriately measured, the increase of real wages in the
depression years was not a general feature of the 12-country experience.
Here we proceed along a similar line to Madsen and measure real wages as
real earnings deflated by the GDP deflators of ten countries. (3)
Because we are mainly interested in unemployment and employment the
selection of countries covered by our study is slightly different from
Madsen, providing further independent evidence on the question of real
wage rigidity.
In general the comparative literature has neglected the supply-side
aspects of labour force growth. Such variables have been emphasised in
some of the national case studies - for example, Beenstock and Warburton
(1986) and Butchart (1997) consider the role of labour force growth and
participation rates in the case of Britain. Here we attempt to remedy
this by considering these supply-side aspects for a cross-section of
countries where we have employment and unemployment data for the
interwar period. In normal circumstances and with unchanging labour
market conditions one would expect the unemployment rate to fluctuate
around the NAIRU (non-accelerating inflation rate .of unemployment).
However, if the economy does not adapt rapidly to fluctuations in labour
supply, then these may be a separate cause of movements in the
unemployment rate. Such supply-side effects could be the result of
demographic trends; for example, in the case of the UK the proportion of
the population of working age increased from 64 per cent in the pre-1913
period to 70 per cent in the interwar period; during 1924-37 while
population growth was 0.4 per cent per annum, labour force growth was
1.5 per cent per annum.
Although many of these demographic changes can be described as
having long-term origins, or as being induced by exogenous international
influences, such as migration restrictions in the new world, we cannot
assume that all the observed growth in labour supply was autonomous.
Beenstock and Warburton (1986) have argued that interwar labour supply
was responsive to real wage trends. Thus, as real wages rose on trend
during 1924-37 this generated supply-side effects that compounded the
unemployment problem. However, using quarterly data for the interwar
period, Hatton (1988) found that although these supply responses were
statistically significant, they were small in magnitude; the adverse
supply conditions can best be viewed as a result of long-term
demographic factors. In this paper we contribute to the literature by
explicitly considering these supply-side effects for a cross-section of
the advanced economies focusing on their likely effects during the Great
Depression episode.
The role of demand variables in driving the rise of unemployment
during the Great Depression has been widely accepted by historians
working within both the neoclassical and Keynesian traditions. Bernanke
and Carey (1996) note that modelling demand explicitly provides a way of
identifying the aggregate supply relationship between real wages and
output/ employment. The way demand is modelled in the comparative
literature is to use industrial production as a proxy measure for
aggregate output movements. This is used in Eichengreen and Sachs
(1985), Bernanke and Carey (1996) and Bernanke and James (1991).
Reinhart and Reinhart (2009) have noted differences between industrial
production and GDP when analysing the effects of exchange rate policies
and the amplitude of the Great Depression. This is to be expected, as
countries display large differences in economic structure; as such,
industrial production will provide a poor indicator of macroeconomic movements in the depression period. Here we choose to work with GDP data
as the macroeconomic variable of interest because it is the broadest
measure of economic activity.
The range of countries for which we have been able to obtain
satisfactory data is inevitably somewhat limited. However, we are able
to look at the experiences of Australia, Belgium, Canada, France,
Germany, the Netherlands, Norway, Sweden, the United Kingdom and the
United States. We focus our attention first of all on the purely
statistical relationship between output movements and movements in
employment and unemployment.
An obvious indication of the relationship between output and
employment changes is to look at the change to employment per unit of
output or equivalently the change to output per unit of employment, i.e.
to labour productivity. If employment moved one for one with output,
then this derived variable would be unchanged. During normal periods in
which labour saving technical progress is taking place we would expect
to see output rising faster than employment, or rising perhaps even if
employment is stagnant or falling. But in recessions, if there is labour
hoarding, or if, as at present, employment conditions have adapted so as
to maintain employment, we would expect to see output falling more than
employment, so that employment per unit of output would rise and labour
productivity would fall.
Employment and unemployment in the contraction phase of the Great
Depression
The focus of attention during the Great Depression was naturally on
unemployment. However, very obviously changes in unemployment can happen
either because of changes in employment or because of changes in labour
supply. For the purpose of understanding what was going on during the
Great Depression it is important to separate out these two effects. We
show in table 1 the total increase in the unemployment rate for the
countries for which we have data, splitting this between the effect of
the change to employment and the change to the labour supply (measured
as employment plus unemployment). These are shown as percentages of the
labour force at the start of the period of contraction. We also show, as
a memorandum item, the increase in the unemployment rate over the
period.
The correlation between the increase in unemployment and the
reduction in employment, measured as a proportion of the labour force at
the start of the contraction is only 0.43, demonstrating the importance
of, at least in any study of supply conditions, looking at the
relationship between real wages and employment rather than real wages
and unemployment. In particular we note that in the United Kingdom,
Canada, the Netherlands and Sweden, more than half of the increase in
unemployment is explained by increased labour supply rather than by
reduced employment. By contrast, in France and Germany reductions in the
labour force held down the increase in unemployment and in Germany the
effect was extremely strong. Some authors have attempted to explain
these movements in labour supply in terms of the generosity of
unemployment benefits (in part because the value of benefits fixed in
money terms was increased as a result of price deflation). We do not
discuss that issue here but focus our attention on the relationship
between employment, output and real product wages.
A framework for exploring real wages, output and employment
We assume that output is driven by a constant elasticity of
substitution production function
[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII.]
where [gamma] is the rate of labour-saving technical progress and
1/(1-[delta]) is the elasticity of substitution between labour and
capital. With this production function we have the standard result that
the output per unit of labour, i.e. labour productivity, depends on the
wage after adjusting for trend labour-augmenting technical progress, and
equating the real wage to the marginal product of labour.
log(Y/L) = 1/1-[delta] log(w[e.sup.-[gamma][delta]t]) -
log([beta])/1-[delta] = 1/1-[delta] log(w) -
log([beta])+[gamma][delta]t/1-[delta] (1)
Here it is important to note that w is the product wage and, since
we are looking at the whole economy, the appropriate deflator is the GDP
deflator.
There are two possible ways of looking at the relationship between
employment and wages. In the first case, described by Beenstock and
Warburton (1986) as the neoclassical case, we assume that output is not
constrained by effective demand, so that employment responds only to the
real wage.
We substitute out for Y in equation (1) to give
(1/[delta])log([alpha][K.sup.[delta]] +
[beta][e.sup.[gamma][delta]t]) - log L = 1/1-[delta] log(w) -
log([beta])+[gamma][delta]t/1-[delta] (2)
Now, looking at small differences and equating the change in the
real wage to the change in the marginal product of labour, this gives
[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII.] (3)
As a check we can see that if the labour input does not change
while the capital stock grows at the rate of labour-saving technical
progress, [gamma], then the real wage also grows at rate [gamma].
With this general relationship there are still two possible
assumptions we may wish to make, given the general absence of suitable
data on capital stocks and the cost of capital. With output taken as
endogenous, if we assume that the stock of capital grows at the rate
[gamma], we have
[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII.] (4)
Since a requirement of the production function is that [delta] <
1, this shows the expected negative relationship between the growth of
the real wage and the growth of labour input.
Alternatively one might assume that the capital stock is fixed
rather than growing at the same rate as labour productivity. Inspection
of the above equations reveals, not surprisingly, that this assumption
does not affect the marginal influence of the real wage on employment;
it simply delivers a different time trend. Thus with either of these
assumptions we find the influence of the real
wage on employment depends on the elasticity of substitution
between labour and capital, 1/(1-[delta]) geared up by a term which can
be interpreted as the contribution of capital relative to labour in
overall output.
One important point to note is that, even if the underlying
production function correctly describes the determinants of output, the
capital stock in all probability is neither constant over the period of
interest to us, nor is it growing at a constant rate. If its growth were
random and uncorrelated with employment growth, then (4) could still be
estimated by OLS regression. To the extent that there is serial
correlation in the growth rate of the capital stock, we will expect to
find serial correlation in the residuals of a statistical relationship
between employment growth and real wage growth over time for any
individual country, while any correlation between growth in the capital
stock and in employment will result in a biased estimate of the
coefficient on wage growth.
In the second case we assume that output is demand-constrained, so
that businesses take the level of demand as given and simply try to
equate the marginal product of labour to the wage rate in the light of
this. Beenstock and Warburton (1986) describe this as the Keynesian
case.
Now the analysis is much simpler. Equation (1) is itself a
statistical relationship which can be estimated, showing the real wage
as a determinant of productivity. Equally the derivative of this gives,
for comparison with equation (4)
[DELTA]L/L = [[DELTA]Y/Y] + [1/[delta]-1] [[DELTA]w/w] -
[[delta][gamma]/[delta]-1] [DELTA]t (5)
This also shows a negative relationship between the change in the
real wage and the change in employment. It is also clear that the
negative impact of a change in the real wage is greater in an economy
which is not demand constrained than in one which is demand constrained;
in
the latter case the gearing factor, [alpha]
[K.sup.[delta]]+[beta][gamma] [e.sup.[gamma]t] [L.sup.[delta]]/[alpha]
[K.sup.[delta]]
absent. Such a conclusion is hardly surprising, since in the former
case output movements are endogenous while in the latter case output
movements are taken as given. To the extent that we use equations (4)
and (5) to explore the relationship between real wages and employment on
a cross-section basis for the period in which output contracted, the
former points to estimating an equation for the change in log employment
in terms of the change in the real wage and the duration of the
contraction, while the latter indicates that the dependent variable
should be the change in log labour productivity rather than the change
in log employment. Estimation of the former equation does rely on the
assumption that the ratio [alpha][K.sup.[delta]] + [beta][gamma]
[e.sup.[gamma]t] [L.sup.[delta]] / [alpha][K.sup.[delta]] takes the same
equilibrium value in all the countries of interest.
These observations suggest a strategy for exploring the
relationship between employment, real wages and, where relevant, output.
First of all we use the structure implied by the equations in
differences to explore the relationship between real wages, employment
and output during the period of particular interest to us, that is the
period when, in each of the countries for which we have data, the
unemployment rate was rising. It should be noted, of course, that this
was not the same period for each country, but, because our focus is on
the relationship between real wages and employment in a period of a
rising unemployment rate, this is not a problem. Thus we explore this
relationship using cross-section data during the period when output was
falling. The second way in which we can explore the relationship between
real wages, output and employment is by making use of the panel aspect
of our data, albeit that they form an unbalanced panel. We explore these
two different uses of our data in turn.
Employment, real wages and output during the period of rising
unemployment
We look at the cross-sectional relationship between the changes in
employment, real product wages and output itself from a number of
perspectives. We begin with three regression equations explaining the
change in labour productivity: the Keynesian equation--the change in
output, the neoclassical equation, and finally the change in employment
which can also be regarded as an examination of the neoclassical idea
that output and employment are jointly determined given real wages
rather than output. The data we use are shown in table 2; they cover the
period of rising unemployment rates. (4) The data show considerable
heterogeneity of experience, not only in the contraction of output and
the fall in employment, but also in movements of labour productivity and
the product wage. It is well known that the contraction was at its most
severe in Germany and in the United States; the movements in
productivity and product wages were nevertheless very different.
The relationship between the change in product wage and the other
three variables is shown in table 3. None of these equations is remotely
statistically significant, suggesting that a standard production
function does not offer a satisfactory explanation of the relationship
between real wage movements and any of output, employment and labour
productivity movements during the period of economic contraction.
We now look in table 4 at a somewhat more flexible model related to
the first (Keynesian) model. However, instead of looking at productivity
movements, which effectively imposes a unit coefficient on output, we
explain employment movements by means of output and real wage movements.
This equation shows a close to significant role for the change in
output, but with a coefficient well below the value of one implied by
the Keynesian production function model. The term in the product wage
remains, however, incorrectly signed. If we suppress the term in the
product wage we find that the change in log output has, not
surprisingly, a statistically significant relationship with the change
in log employment, again with a coefficient of well below one. However
we note that a conclusion that this shows clear labour hoarding is
conditional on the assumption that the output movements are exogenous.
If one instead assumed that the employment movements were exogenous and
estimated the reverse regression, one would then conclude that output
moved less than in proportion to employment but with a coefficient which
was not significantly below one.
In the first three equations we have not included any effects
representing trend productivity growth. These might be expected to play
a role given that the periods of rising unemployment are different for
different countries. However, the inclusion of an extra variable
representing the length of the interval considered has no material
effect on any of the regression equations.
Secondly, one might be concerned with reference to the last
regression equation that output growth is in fact endogenous, leading to
biased parameter estimates. We re-estimated the equation using, as an
instrument for output growth, the country-by-country ranking of output
growth and this had little overall impact on the conclusions.
To summarise, two conclusions can be drawn from this cross-section
work. First of all, there is no clear evidence that movements in real
wages in the different countries considered affected employment losses
in any perceptible way. And secondly, there is clear general evidence of
labour hoarding conditional on the assumption that output movements are
exogenous. This limited the effects of the economic contraction on
employment. However, as the data for individual countries show, in
Belgium employment fell by much more than output and in the UK, Germany,
and the Netherlands employment and output moved broadly in line, keeping
productivity constant. Really sharp declines in productivity were found
in Australia, Canada and the United States.
Dynamic analysis of output, employment and real wages
Long-run effects from country models
In our static cross-section analysis we were able to explore the
relationship between real wages and employment making both neo-classical
and Keynesian assumptions. However, an obvious extension of the analysis
is to explore the idea that the production function relationship
represents a long-term constraint and that short-term movements are, on
the one hand a dynamic adjustment to this and, on the other hand, a
process of response to shocks; as we noted earlier, this is particularly
appropriate given the absence of suitable capital stock data. It would
be natural to do this using all the data we have available for the
interwar period rather than simply to look at the period of rising
unemployment.
If we look at this longer period, the assumption that the capital
stock is fixed cannot be maintained. If we assume that the capital stock
grows on a trend basis, we can see that the neoclassical production
function (2) provides a highly non-linear relationship between
employment and the log real wage; even with capital stock data the
non-linearity would still be present. By contrast the productivity
equation (1) with output as exogenous gives a simple long-run
relationship which can be used in a dynamic adjustment equation and it
is this we use as the basis for our estimation.
Thus our main dynamic model is of the form
[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII.]
where we expect to be able to accept the restriction that
[[phi].sub.1] = 1 and also have specified the structure so that all the
coefficients except possibly [[phi].sub.4] are positive.
The obvious estimator to use is the Pooled Group Mean Estimator
(Pesaran, Shin and Smith, 1999) which does not impose the restriction,
found in more traditional panel estimators, that all the coefficients
are the same for all countries. However, for the estimator to be used it
is necessary to be able to estimate an individual regression for each
country; while that is just possible with our data set, it is helpful to
mitigate the problems arising from a small number of degrees of freedom.
We therefore impose the restrictions that [[alpha].sub.1] =
[[phi].sub.1] =1 and limit ourselves to estimating the coefficients of a
dynamic adjustment process for the effects of the real wage on
productivity levels. We also note that to find the solution the time
effect has to be outside the long-run relationship. This has the
implication that, as with the other short-run effects, we are estimating
the average value for the data set, but that it is not restricted to be
uniform for all countries. The restricted equation is
[DELTA]log([Y.sub.t]/[L.sub.t]) =
[[alpha].sub.2][DELTA]log[w.sub.t] +
[[alpha].sub.3]t-[gamma](log([Y.sub.t-1]/ [L.sub.t-1]) +[[phi].sub.t]
log [w.sub.t-1]) + [[alpha].sub.4]
The Pooled Group Mean Parameter estimates are, with z-statistics
shown in brackets,
[MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]
The coefficients on [DELTA] [logw.sub.t], on time and on the
adjustment term, log([Y.sub.t-1]/[Lt.sub.-1]) - 0.143 log [w.sub.t-1],
are the means and the constant of the sample while the coefficient on
log [w.sub.t-1] itself is restricted to be the same for all countries.
This equation suggests a correctly signed, but weak, long-term effect of
product wages on productivity and thus, for any given level of output,
on employment. Comparison with equation (1) shows that the time term is
incorrectly signed, or at least is consistent with technical regress rather than technical progress; however it is more probable that this
effect arises from a failure of movements in real wages to reflect
technical progress fully during the period. The short-term relationship
between productivity and real wages is also correctly signed but it is
both statistically insignificant and under half the long-term effect.
The weak nature of the long-run effect can be identified by noting
that the equation implies a 7 per cent reduction in real producer wages
is needed to generate a long-run increase of 1 per cent in employment.
Thus a reasonable conclusion is that real wage adjustment was not a
remotely plausible mechanism for offsetting the 29.5 per cent reduction
in employment seen in Germany between 1928 and 1932.
We also attempted to estimate a similar equation
[DELTA] log [L.sub.t] = [[alpha].sub.2][DELTA]log [w.sub.t]
+[[alpha].sub.3] t-[gamma]( log [L.sub.t-1] + [[phi].sub.2] log
[w.sub.t-1]) + [[alpha].sub.4]
explaining employment rather than productivity in terms of time and
the real wage where we expect a positive value for [[phi].sub.2];
however the data were such that we could not find a maximum value for
the likelihood function.
Conclusions
Recently a number of authors have argued that neoclassical models,
based on optimising equilibrium behaviour, but subject to distortions
arising from wedges (Chari, Kehoe and McGrattan, 2007, and papers in
Kehoe and Prescott, 2007) provide satisfactory explanations of the
behaviour of depressed economies. Whilst our results do not rule out
such conclusions, we find little general econometric evidence for the
idea that movements in product wages had strong influences on employment
either during the period of rising unemployment associated with the
depression of the 1930s or more generally with the data which exist for
the 1920s and 1930s. This finding, which is based on comparative
analysis, confirms the reservations expressed by Madsen (2004) on the
role of real wages in the Great Depression.
If one takes the view that wage rates are exogenous (as they would
be if unemployment were a problem of sticky wages), then there is weak
evidence that productivity was affected by wage movements in the way
that economic theory would suggest. However, in such an analysis,
movements to output are best regarded as largely exogenous and the
findings are therefore consistent with the idea that demand played an
important role in employment fluctuations.
The alternative view that employment is driven by factor prices and
technological developments cannot be fully explored with data on the
capital stock and costs of capital. However, making simplifying but
necessary assumptions, we find little evidence to support this
explanation. While we cannot establish statistically significant
relationships between employment and product wages, we do find that, on
balance, the signs of the effects tend to be incorrect.
Our analysis has also shown that the comparative approach is useful
in illustrating the importance of supply-side factors in explaining some
of the unemployment of the Great Depression period. Clearly, this is an
important aspect of a number of the interwar national unemployment
experiences that warrants further research.
DOI: 10.1177/0027950110389762
DATA APPENDIX: SOURCES
I. Unemployment
Australia
The data used are from Keating, M. (1973), The Australian
workforce, 1910-11 to 1960-61, Australian National University, Dept. of
Economic History, Research School of Social Sciences. Similar series are
reported in Vamplew, W. (ed.) (1987), Australians: Historical
Statistics, Fairfax, Syme and Weldon Associates, Sydney, Table: LAB
86-97, column 97, p.152.
Belgium
Goossens, M. (1988), 'De Belgische arbeidsmarkt tijdens bet
Interbellum', Tijdschrift voor Economie en Management, Vol. 2, pp.
109-26.
Canada
Maddison, A. (1964), Economic Growth in the West, London, Allen
& Unwin. The 1920-31 figures are from Urquhart, M.C. (ed.) (1965),
Historical Statistics of Canada, Toronto, MacMillan and the 1931-8
figures are taken from the Canadian Statistical Review.
France
The unemployment data is reported in the work of Pierre Villa and
can be found at the CEPII webpage http://
www.cepii.fr/francgraph/bdd/villa/mode.htm.
Germany
Maddison, A. (1964), Economic Growth in the West, London, Allen
& Unwin. The data reported in Maddison follow the same temporal
movements to the data reported in Corbett, D., Unemployment in Interwar
Germany, PhD thesis, Harvard (1991). However, Corbett reports data only
for the period after 1925. For consistency we have chosen to work with
Maddison's data.
Netherlands
Maddison, A. (1964), Economic Growth in the West, London, Allen
& Unwin.
Norway
Grytten, O.H. (1995), 'The scale of Norwegian interwar
unemployment in international perspective', Scandinavian Economic
History Review, 2, pp. 226-50.
Sweden
Grytten, O.H. (1995), 'The scale of Norwegian interwar
unemployment in international perspective', Scandinavian Economic
History Review, 2, pp. 226-50.
United Kingdom
Feinstein, C.H. (1972), National Income, Expenditure and Output of
the United Kingdom, 1855-1965, Cambridge, Cambridge University Press.
United States
The data for the 1920s is from Lebergott, S. (1964), Manpower in
Economic Growth, New York, McGraw Hill. For the period 1929-38 we use
the revisions suggested by Darby, M.R. (1976), 'Three-and-a-half
million US employees have been mislaid, or an explanation of
unemployment, 1934-1941', Journal of Political Economy, 84, 2, pp.
1-16. Similar data is reported in Carter, S.B. (2006), Table Ba470-477,
'Labor force, employment, and unemployment: 1890-1990' in
Carter, S.B., Gartner, S.S., Hainews, M.R., Olmstead, A.L., Sutch, R.
and Wright, G. (eds), Historical Statistics of the United States,
Earliest Times to the Present: Millennial Edition, New York, Cambridge
University Press, 2006.
2. Employment
Australia
Vamplew, W. (ed.) (1987), Australians: Historical Statistics,
Sydney, Fairfax, Syme and Weldon Associates, Chapter 9, p.152.
Belgium
Goossens, M. (1988), 'De Belgische arbeidsmarkt tijdens het
Interbellum', Tijdschrift voor Economie en Management, 2, pp.
109-26.
Canada
Historical Statistics of Canada: http://
www.statcan.gc.ca/pub/11-516-x/sectiond/4057750-eng.htm#2 Employment
data http://www.statcan.gc.ca/
cgi-bin/af-fdr.cgi?l~=eng&loc=D528_539-eng.csv.
France
The employment data is reported in the work of Pierre Villa and can
be found at the CEPII webpage http://
www.cepii.fr/francgraph/bdd/villa/mode.htm.
Germany
Ritschl, A. (2002), Deutschlands Krise und Konjunktur.
Binnenkonjunktur, Auslandsverschuldung und Reparationsproblem zwischen
Dawes-Plan und Transfersperre 1924-1934, Berlin, Akademie-Verlag. Data
can be found at http://personal.lse.ac.uk/ritschl/
interwargermanydata.html.
Netherlands
Central Bureau of Statistics. Data are available at
http://www.cbs.nl/NR/rdonlyres/9E42BCD3-922D-4E4D-B957-51EE913
FC450/0/BLZ 187HE2009.xls Sheet H2AE Column J.
Norway
Grytten, O.H. (1994), An Empirical Analysis of the Norwegian Labour
market, 1918-1939, Bergen, NHH, p. 198.
Sweden
Edvinsson, R. (2005), Growth, Accumulation, Crisis: With New
Macroeconomic Data for Sweden 1800-2000, Doctoral dissertation,
Stockholm, Almqvist & Wiksell Insternational.
United Kingdom
Feinstein, C.H. (1972), National Income, Expenditure and Output of
the United Kingdom, 1855-1965, Cambridge, Cambridge University Press.
United States
Carter, S.B. (2006), Table Ba470-477, 'Labor force,
employment, and unemployment: 1890-1990' in Carter, S.B., Gartner,
S.S., Hainews, M.R., Olmstead, A.L., Sutch, R. and Wright, G. (eds),
Historical Statistics of the United States, Earliest Times to the
Present: Millennial Edition, New York, Cambridge University Press, 2006.
3. Real earnings
All nominal wage/earnings data have been deflated by the GDP
deflator of each country.
Australia
Liesner, T. (1989), One Hundred Years of Economic Statistics:
United Kingdom, United States of America, Australia, Canada, France,
Germany, Italy, Japan, Sweden, Economist Publications, Table A.8.
The data relate to average hourly earnings in manufacturing -
earnings of adult males in October of each year. For 1929-39, figures
are for men in manufacturing, mining, construction, transport and
agriculture. For 1920-28, the data are from Butlin, M.W. (1977), 'A
preliminary annual database 1900/01 to 1973/74', Reserve Bank of
Australia working paper, RDP7701.
Belgium
International Labour Office (ILO) (1940), Year-Book of Labour
Statistics, Geneva, Table XIII.
Series: Average wage in mines, industries and transport
Canada
http://www.statcan.gc.ca/pub/11-516-x/3000140-eng.htm. Series E41.
Average annual earnings of production workers index.
France
International Labour Office (ILO) (1940), Year-Book of Labour
Statistics, Geneva, Table XIII. International Labour Office (ILO)
(1935-6): Year-Book of Labour Statistics, Geneva, Table IX.
The data relate to Hourly Industry rates (towns other than Paris)
and relate mainly to skilled workers.
Germany
Bry, G. (1960), Wages in Germany, 1871-1945, Princeton University Press, Table A-2 Part III.
Netherlands
International Labour Office (ILO) (1940), Year-Book of Labour
Statistics, Geneva, Table XIII. International Labour Office (ILO)
(1935-6): Year-Book of Labour Statistics, Geneva, Table IX.
Industrial hourly earnings index, mainly relating to skilled and
unskilled males in mines and industries.
Norway
Mitchell, B.R. (1992), European Historical Statistics, 1750-1988,
Table B4, p. 184.
The wage data relate to hourly wages. However, the movements are
very close to the data based on daily earnings (covering skilled and
unskilled males in mining and industry) from the ILO sources:
International Labour Office (ILO) (1940), Year-Book of Labour
Statistics, Geneva, Table XIII. International Labour Office (ILO)
(1935-6): Year-Book of Labour Statistics, Geneva, Table IX.
Sweden
Liesner, T. (1989), One Hundred Years of Economic Statistics:
United Kingdom, United States of America, Australia, Canada, France,
Germany, Italy, Japan, Sweden, Economist Publications, Table S.8.
The data relate to adults only, and are derived from information in
the second quarter of each year. For the period 1929-38 the data relate
to males only and include mining, manufacturing, construction, commerce
and transport.
United Kingdom
Feinstein, C.H. (1972), National Income, Expenditure and Output of
the United Kingdom, 1855-1965, Cambridge, Cambridge University Press,
Table 65.
The data are average weekly wage earnings (weekly wages adjusted
for the effect of changing hours). The index covers the main categories
of manual workers, and is a weighted average based on wage-bills for
different industries in 1924.
United States
International Labour Office (ILO) (1940), Year-Book of Labour
Statistics, Geneva, Table XIII International Labour Office (ILO)
(1935-6), Year-Book of Labour Statistics, Geneva, Table IX.
The data are average hourly earnings in Industry and were based on
the National Industrial Conference Board statistics and cover males and
females.
4. GDP
Real GDP indices are from Barro, R.J. and Ursua, J.F. (2008),
'Macroeconomic crises since 1870', Brookings Papers on
Economic Activity.
The data set is available at:
http://www.economics.harvard.edu/faculty/barro/ data_sets_barro.
In the case of the UK we use the balanced GDP measure from Sefton,
J. and Weale, M.R. (1995), Reconciliation of National Income and
Expenditure: Balanced Estimates of National Income for the United
Kingdom 1920-1990, Cambridge, Cambridge University Press.
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Bernanke, B. and James, H. (1991), 'The gold standard,
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NOTES
(1) We use the term depression to mean a period when output is
depressed below its previous peak while a recession is a period of
falling output.
(2) Bernanke and Carey (1996, p.859) state: "The choice of
wholesale prices index as a deflator ... is dictated by data
availability".
(3) There are data available on both wage rates and earnings. Where
available, we have used movements in earnings per person as our
indicators of movements in the real wage. Such data are, of course,
vulnerable to inaccuracies arising from changes to the length of the
working week. We have not found any evidence that this was a corrupting
factor during the Great Depression - in general, the movements of rates
and earnings are highly correlated.
(4) With the exception that there was a very slight fall in the
unemployment rate in France in 1934. However, unemployment continued to
rise in 1935 and 1936 and we have therefore treated this as one period.
Solomos Solomou, University of Cambridge. E-mail: ss19@cam.ac.uk.
Martin Weale, NIESR. E-mail: m.weale@niesr.ac.uk.
Table 1. Employment and unemployment while unem-
ployment was rising
Period Increase Increase Reduction Increase
in in labour in unem- in employ- in unem
question force ployment ment ployment
rate
(% of labour force (% points)
at start of contraction)
UK 1929-32 4.8 9.0 4.3 8.3
Australia 1926-32 5.2 15.5 10.3 13.9
Belgium 1928-32 -0.8 18.9 19.7 19.0
Canada 1928-33 10.7 19.7 9.0 17.6
France 1929-36 -4.9 3.4 8.3 3.6
Germany 1928-32 -19.4 10.1 29.5 13.4
Neths 1928-36 9.3 11.4 2.1 10.3
US 1929-32 4.9 21.1 16.2 20.0
Norway 1929-31 2.0 4.2 2.2 4.0
Sweden 1929-33 4.3 5.8 1.5 5.4
Note: The data are presented for a period of uniformly rising
unemployment rates beginning in the late 1920s. France showed a very
small fall in its unemployment rate in 1934 but unemployment then
rose in 1935 and 1936, so we have treated the relevant period as
extending to 1936. The peak-trough dates are those for
unemployment and differ slightly from the comparable dates for GDP
(as in the case of the US).
Table 2. Output, employment and real wages during the
period of rising unemployment
[DELTA] ln [DELTA] ln
Output Employ-
ment
UK 1929-32 -0.055 -0.046
Australia 1926-32 -0.250 -0.089
Belgium (a) 1929-32 -0.124 -0.232
Canada 1928-33 -0.350 -0.107
France 1929-36 -0.193 -0.086
Germany 1928-32 -0.328 -0.345
Neths 1928-36 -0.089 -0.072
US 1929-32 -0.342 -0.135
Norway 1929-31 -0.088 -0.032
Sweden 1929-33 -0.027 -0.034
[DELTA] lnY/L [DELTA] ln
product
wage
UK 1929-32 -0.008 -0.002
Australia 1926-32 -0.161 0.061
Belgium (a) 1929-32 0.108 -0.072
Canada 1928-33 -0.243 -0.088
France 1929-36 -0.107 0.329
Germany 1928-32 0.016 0.017
Neths 1928-36 -0.017 -0.001
US 1929-32 -0.207 0.116
Norway 1929-31 -0.056 0.019
Sweden 1929-33 0.008 0.047
Note: (a) There are no real wage data for Belgium for 1928 so the
change is calculated from 1929 even though 1928 is the year with the
lowest unemployment rate.
Table 3. The relationship between the change in the
product wage and movements in productivity, output
and employment
Dependent variable Change in log Constant
product wage
Change in log Coefficient -0.060 -0.044
productivity s.e. 0.360 0.045
[R.sup.2] [omega]
0.004 0.116
Change in log Coefficient 0.133 -0.170
output s.e. 0.447 0.055
[R.sup.2] [omega]
0.011 0.145
Change in log Coefficient 0.193 -0.126
employment s.e. 0.339 0.042
[R.sup.2] [omega]
0.039 0.110
Table 4. The change in employment as a function of the
change in product wage and output
Dependent Change in Change in Constant
variable log product log
wage output
Change in Coeff 0.184 0.434 -0.046
log employment s.e 0.262 0.245 0.054
[R.sup.2] [omega]
0.333 0.092