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Why did productivity fall so much during the Great Depression?

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  • Lee E. Ohanian

Abstract

Between 1929 and 1933, real output per adult fell over 30 percent and total factor productivity fell 18 percent. This productivity decrease is much larger than expected from just extrapolating the productivity decrease that typically occurs during recessions. This paper evaluates what factors may have caused this large decrease, including unmeasured factor utilization, changes in the composition of production, and increasing returns. I find that these factors combined explain less than one-third of the 18 percent decrease, and I conclude that the productivity decrease during the Great Depression remains a puzzle.

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  • Lee E. Ohanian, 2001. "Why did productivity fall so much during the Great Depression?," Staff Report 285, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:285
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    References listed on IDEAS

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    1. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 439-459, June.
    2. John W. Kendrick, 1961. "Productivity Trends in the United States," NBER Books, National Bureau of Economic Research, Inc, number kend61-1, May.
    3. Harold L. Cole & Lee E. Ohanian, 2001. "Re-Examining the Contributions of Money and Banking Shocks to the US Great Depression," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 183-260, National Bureau of Economic Research, Inc.
    4. Andrew Atkeson & Patrick J. Kehoe, 1993. "Industry evolution and transition: the role of information capital," Staff Report 162, Federal Reserve Bank of Minneapolis.
    5. Andrew Atkeson & Patrick J. Kehoe, 2005. "Modeling and Measuring Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 1026-1053, October.
    6. Lawrence H. Summers, 1986. "Some skeptical observations on real business cycle theory," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 10(Fall), pages 23-27.
    7. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, May.
    8. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-461, June.
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    More about this item

    Keywords

    Productivity; Depressions;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N44 - Economic History - - Government, War, Law, International Relations, and Regulation - - - Europe: 1913-
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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