Friday, September 28, 2012

Unemployment during the Great Depression

Unemployment remained above normal for a long period after the recovery from the Depression started in 1933. So much so that Galbraith père dictum became famous:  “Hitler, having ended unemployment in Germany, had gone to end it for its enemies.” That is, even if the New Deal was successful it was unable to completely eliminate unemployment, something that only World War II did. The graph below shows two different series for unemployment, one that follows closely the official BLS level by Lebergott, and one by Darby.
The main difference is that Darby includes the workers in the emergency government labor force as employed – the most important being the Civil Works Administration (CWA) and the Works Progress Administration, later renamed Work Projects Administration (WPA). Once the workfare programs are accounted for, the level of unemployment fell from 22.9% in 1932 to 9.1% in 1937, a reduction of 13.8%, which can hardly be seen as a failure, even if the 1937 level is certainly not full employment.

Also, the increase in unemployment with the 1937-38 recession was of only 3.4%, with Darby’s data, and by 1940 it was already at 9.5% falling precipitously with the onset of the war. Mind you, Darby was a traditional Monetarist, at that point at least, having studied in Chicago, and he argued that the reduction in unemployment, once corrected to include the New Deal programs reveals: "a strong movement toward the natural unemployment rate after 1933 [sic]."

The notion that 9.1% unemployment, much lower as a result of direct employment programs, is natural, in any sense is peculiar, to say the least. From my perspective it shows that the New Deal was actually quite more successful than normally presumed. But that's me. By the way, due to other activities I'll be blogging slightly less these following days.

PS: For more go to this paper.

2 comments:

  1. It is also interesting that by 1936 real GDP had surpassed its 1929 level:

    Year | GDP* | Growth Rate
    1929 | $977,000
    1930 | $892,800 | -8.61%
    1931 | $834,900 | -6.48%
    1932 | $725,800 | -13.06%
    1933 | $716,400 | -1.29%
    1934 | $794,400 | 10.88%
    1935 | $865,000 | 8.88%
    1936 | $977,900 | 13.05%
    1937 | $1,028,000 | 5.12%

    And in 1937 real per capita GDP was close to reaching its 1929 level as well – until Roosevelt listened to advocates of fiscal austerity and the economy plunged back into recession:

    Real US Per Capita GDP 1870–2001
    (in 1990 international Geary-Khamis dollars)
    Year | GDP | Growth rate

    1929 | 6899 | 5.02%
    1930 | 6213 | -9.94%
    1931 | 5691 | -8.40%
    1932 | 4908 | -13.75%
    1933 | 4777 | -2.66%
    1934 | 5114 | 7.05%
    1935 | 5467 | 6.90%
    1936 | 6204 | 13.48%
    1937 | 6430 | 3.64%
    1938 | 6126 | -4.72%
    1939 | 6561 | 7.10%

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    1. Thanks for the data. Yes the recovery I think was quite impressive, even if full employment was not achieved, no matter which way you look at it.

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