Economics question: Great Depression and Unemployment

According to my understanding, there wasn’t any minimum wage law during the start of the Great Depression.

I don’t think there were any unemployment benefits either, so the incentive to find a job, ANY job, would be pretty high. There was nothing to fall back on.

Why was the unemployment rate so high? Why didn’t people just lower how much they were willing to sell their work for until employers snatched up the bargain basement price for labor?

Employers can only hire people if they have work for them to do. If I own a furniture factory, for instance, and nobody wants to buy my furniture, it doesn’t make any sense for me to hire workers, even if I can get them for cheap.

there certainly were “minimum wages” in many industries in the 1920s. Wage levels were enforced by the unions and by social custom (remember, wages are sticky). Moreover, as you may recall, one of the hallmarks of the reign of Herbet Hoover, the “great engineer”, was to call up high level execs of big companies that were hurting due to low sales and demand of them not to fire the workers. Cause, you see, if Hoover is telling you that there is nothing fundamentally wrong with the economy, who the hell are you to disagree? So there was a lot of pressure exerted from various places to keep wages high - and so they bankrupted many of these companies, exhausting their fiscal reserves. A business without sales and without reserves cannot adapt to the situation, it can only collapse and/or be taken over by the government.

Now, as 1930s progressed, in came Roosevelt who made higher wages and union rights protection the cornerstone of his labor policy. That was great for the lucky guys who got those wages and bad for everybody else who couldn’t get that high paying job. Well, plus the overall economic stifling from regulation and so forth, that’s another matter.

Incidentally, a useful thing to remember about this so-called “Great Depression” in the form that Americans remember it it was purely American phenomenon. In countries with less stifling economic regimes (e.g. Germany, Sweden, Czech Republic, Italy, Japan) things went much better throughout the late 30s at the least. Of course, that does not fit in well into the progressive narrative of savior Roosevelt saving American capitalism from its own evil greed, which is why both history textbooks and progressive apologists like Galbraith prefer to avoid the subject.

Lots of employers went out of business, too. Banks failed, which meant not only did they go under, but businesses that needed loans could not get additional money for expansion.

Also, since people were wiped out, they had no money to buy products. The businesses that sold and manufactured those products had to cut back and then didn’t have enough work for their employees.

Businesses did try to keep people employed if they could. Employees would have their hours cut, but still kept their jobs.

In any case, your assumption in the question is that jobs were available if people wanted them. People wanted them, and were willing to take any wage, but the jobs just weren’t there.

Since unemployment estimates during the end of the Hoover administration were 25% and up, I would assume anyone who read the numbers would disagree. Hoover’s plan might have worked in a regular depression, but Hoover was badly out of touch with the reality (for instance, he recommended people out of work get jobs as servants – and had to be told that all but the very rich had stopped using servants long before the Depression began).

Utter nonsense. It was a worldwide Depression. Even using the countries you mentioned, we know that Germany was so badly hit by it that it led to the Nazis rising to power because the economy there was so bad. Germany did end their Depression early by kicking Jews out of the economy (unemployed Germans took their place) and having a big military buildup.

The only country that was unaffected by the Depression was the Soviet Union. I guess they were doing the right thing by your lights.

There were no employers. The number of jobs that existed dropped dramatically, and those that did have jobs saw their wages plummet. Whole industries were decimated by the downward spiral of the economy. Home building dropped by 80%. Production in the auto industry was down 75%. The farming industry was nearly destroyed. Forty-four percent of American banks failed. Etc., etc., etc…

And while the national unemployment rose above 23%, in some cities that number was 50/60/70 percent. This created a class of homeless migrants who traveled around looking for work – more than two million by some estimates.

another thing to notice is mismatch of skills to economic needs and capacity (or lack thereof) of the educational institutions. Recall some of the highlights from “Grapes of Wrath”:

  1. many farmers unable to compete with mechanized farms - their land is repossessed and they abandon agriculture, forever. Their land is now tilled by tractors. Agricultural prices are low (and one of the characters is pleading about how cotton prices will rise from the war etc)

  2. these farmers are essentially wiped out financially. They have little savings/reserves left. What little they have, they end up spending in wondering around as migrants looking for work. Just like companies without reserves, people without savings are helpless in the face of problems. They lack flexibility, and they end up paying MORE for the same things because they cannot plan their work and finances even in the medium term. In short, they end up losing everything.

  3. there are no low skilled jobs in industry to be had anywhere, both in their home state and in places where they travel to. The only low skilled work is agricultural harvesting, and there is not enough even of those jobs to go around.

  4. there is appreciation of the value of vocational training as the route to a better life. One of the characters, the dreamer guy who eventually abandoned his wife and baby, liked to talk about how he will make something of himself by learning electronics “from books”, like via distance ed in our terms (needless to say, it’s all BS).

This may sound like a parody of the situation, but it reflects a core, underlying truth - a lack of effective and accessible vocational education that could have made people more employable. The vocational education problem was subsequently solved in America, temporarily, during and after the war through training in the military. Contrary to the popular myth, the most important aspect of GI bill was not giving some veterans degrees in English lit but rather giving some others of them an opportunity to get vocational training which made them useful skilled workers in the postwar economic revival. But back in the 30s the government didn’t care - their only educational innovation was pushing for longer terms of high school education to remove young men from the job market and warehouse them in schools wasting time and money on writing Great Gatsby essays.

In sum, it was a deeply messed up time made all the worse because the government wanted to do “something” but the stupid things they did made things worse and worse, much worse than what would have been if they would have just put down the pen and “stepped away from the policy writing table, sir”.

Why don’t you give us a cite that wages remained sticky after the crash, in the midst of overall deflation, because I find that extremely hard to believe.

And minimum wage generally refers to government required wage floors, not voluntary or contractually agreed to wage floors.

Riiight. That’s why industrial production stayed completely collapsed during the Roosevelt administration. Oh, wait. It didn’t. Industrial production had recovered to near pre-crash levels before the '37 policy changes. How is it possible to have overall economic stifling and still have growth in industrial production?

God, this paragraph is so historically ignorant, I don’t know where to begin. All of these countries suffered from a depression. And to claim that Germany somehow had a less stifling economic regime is absurd. Germany in the late 30s was a crony-capitalist cartel system with regulatory and subsidy apparatus designed to benefit large corporations while explicitly depressing the wages of the average worker and locking them into their jobs (industrial serfdom). Germany’s regulatory regime was certainly differently focused than the US’s, but the only way you can plausibly claim that it was less stifling is to completely ignore regulations aimed at workers.

Or, maybe people actually study these things, which is something you might try to do once in awhile.


I didn’t say that Depression didn’t happen elsewhere. I said it happened differently - and more mildly and quickly. Other economies recovered. Depression ended under Nazis and under Japanese and under Czechs and many others by around 1935. In America it just started.

As for unemployment numbers under Hoover, what about them? He made many companies burn through their money in 1929 and 1930 by keeping workers on payroll, then the house of cards collapsed and they still got fired, whereas the long term damage to the companies was already done. What’s your disagreement here?

Aside from the NIRA (which was thrown out anyway), everything they did was either standard Keynesian economics or the creation of regulatory apparatuses to correct market failures (such as the SEC and the FDIC). But, I don’t know. Maybe you like insider trading and losing your savings in bank failures.

And again, since both unemployment dropped and industrial production increased (until the '37 policy changes), they certainly could not have been making things “worse and worse.” That’s complete nonsense.

If it was voluntary, how did he “make” anybody do anything? And I’m still waiting to see a cite that indicates that sticky wages were widespread post-crash.


the Nazi labor policy of keeping wages low and benefiting the corporations was exactly what drove the economic expansion and full employment over there. And your point is? You think that a job with low wage is worse than no job at all? Nazis were particularly popular with the younger people because they were precisely the ones who benefited from those lower paid, more plentiful jobs which wouldn’t have been there if wages and social protections were higher.

increases in industrial production in 1930s in America were not driven by government policy. They were driven by technological advancement that increased labor productivity, created new gadgets to manufacture (like radios) etc. Roosevelt’s regulatory agencies having little to do with all of it.

Of course, in Germany and Japan with the rearmament it was a different matter, there the government spending explicitly increased both industrial production and employment. Likewise in Russia with industrialization and not so much “rearmament” as just plain “for the first time armament”.

It was low demand. Remember, a lot of wealth had been wiped out by the market crash. People and businesses aren’t too willing to spend when they’ve just been soaked, when they’re not sure of the actual value of their assets, or when they’re pessimistic about the short term.

They explicitly prohibited people from changing jobs or employers from raising wages. Somehow, in your bizarro land, this makes for economic freedom.

But you also seem to conveniently forget the other side of the equation, which is that they engaged in heavy Keynesian spending, with direct subsidies to corporations. Frankly, what they were doing with regards to Keynesian stimulus makes the New Deal look like paupers. So, somehow the stuff the New Deal did was too much and stifled everybody, but when the Nazis did similar stuff, that was great and promoted economic growth.

Nice try, but you stated that Roosevelt’s policies made things worse. So which is it? Where there increases in industrial production, or did things get worse? You’re talking out of both sides of your mouth here.

I’m getting the impression that you don’t understand anything about economics at all. Rearmament is a type of Keynesian stimulus. It doesn’t matter what the money is spent on, as long as it gets spent on something. And actually, there are better long-run ways to spend funds (such as infrastructure, which Roosevelt focused on in addition to rearmament).

the problem ended up with a lack of sales. My family owned mills producing both woven and knit fabrics. My grandfather paid the entire cost of keeping his mills open for an extended period of time [almost 9 months] with absolutely no sales made. Payroll, utilities, property taxes, the whole schmear.

If he hadn’t been willing to do this, there would have been 12 mills worth of employees out hitting the pavement for nonexistant jobs [mill towns - we tended to be the major employment that was there with just a few non mill businesses around]

code_grey’s version of history is ideological fantasy.

U.S. Trade Union Private Sector Membership 1920-1995

Union membership went up for a very short period because of gains made by labor during WWI. Labor had less than 15% of the labor force during the 1920s. It could not possibly drive the economy, especially during a decade of Republican/business domination.

Why the dismal figures for union membership? Two major reasons. One is that the technological advancements in industry took place in the 1920s, not the 1930s, as he states. (This should be obvious. Of course, industries are going to advance in boom years, not at the depth of a depression.) The other, and deeper, reason is that it wasn’t until the National Labor Relations Act (or Wagner Act) of 1935 that government policy changed away from officially supporting employers against unions and gave unions full rights to collectively bargain and strike.

It is of course also fantasy that the Depression hit other countries “more mildly and quickly”. In fact, a large number of countries around the world defaulted during the Depression, including Germany, then the third largest economy in the world. Unemployment was at U.S. levels in many countries. Countries emerged from the Depression at different times and rates. About the only real correlation is that those that off the gold standard earlier recovered sooner, although other local and individual factors were probably more important.

You should note that code_grey never gives a cite to any claims. I’ll give you one, though. For a world economic history of the period from 1914 to about 1936, read Lords of Finance: The Bankers Who Broke the World, by Liaquat Ahamed. It’s long, but aimed at the general reader, and as lively as such a book can be. It also refutes every word code-grey says but of course every actual history of the period does, even conservative ones like Amity Shlaes’ The Forgotten Man: A New History of the Great Depression.

You know, I thought the latest right-wing meme was that the Nazis were Socialist/Communists who controlled everything in the economy. Did it change again?

In fact, union membership in the US doubled between 1935-1940.

That’s not actually true. I’m looking at the book “Interwar Unemployment in International Perspective”, and according to its data, the unemployment rate was higher in the United States than in most of the other countries studied from the 1931-1939 time period. (US unemployment was among the lowest in 1929-1930.). In that time period, the only countries that had higher unemployment than the US were Germany in 1931-32, the Netherlands in 1937-38, Australia in 1931, and Denmark in 1937.