Advanced Search
MyIDEAS: Login to save this paper or follow this series

Real Origins of the Great Depression: Monopolistic Competition, Union Power, and the American Business Cycle in the 1920s

Contents:

Author Info

  • Monique Ebell
  • Albrecht Ritschl

Abstract

Most treatments of the Great Depression have focused on its onset and its aftermath. In contrast, we take a unified view of the interwar period. We look at the slide into and the emergence from the 1920-21 recession and the roaring 1920s boom, as well as the slide into the Great Depression after 1929, and attempt to explain these phenomena in a unified framework. The model framework combines monopolistic product market competition with search frictions and bargaining in the labor market, allowing for both individual and collective (unionized) wage bargaining. We attribute the extraordinary macroeconomic and financial volatility of this period to two factors: Shifts in the wage bargaining regime and in the degree of monopoly power in the economy. The pro-union provisions of the Clayton Act of 1914 contributed to the slide in asset prices and the depression of 1920-21, while a series of tough anti-union Supreme Court decisions in late 1921 and 1922 coupled with the lax anti-trust enforcement of the Coolidge and Hoover administrations enabled a major rise in corporate profits and stock market valuations throughout the 1920s. Landmark court decisions in favor of trade unions in the late 1920s, as well as political pressure on firms to adopt the welfare capitalism model of high wages, made the economy increasingly susceptible to collapsing profit expectations. We model the onset of the great depression as an equilibrium switch from individual wage bargaining to (actual or mimicked) collective wage bargaining. The general equilibrium effects of this regime change are consistent with large decreases in output, employment, and stock prices.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2007-006.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2007-006.

as in new window
Length: 65 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2007-006

Contact details of provider:
Postal: Spandauer Str. 1,10178 Berlin
Phone: +49-30-2093-5708
Fax: +49-30-2093-5617
Email:
Web page: http://sfb649.wiwi.hu-berlin.de
More information through EDIRC

Related research

Keywords: Trade unions; collective bargaining; Great Depression;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Accounting for the Great Depression (technical appendix)," Working Papers, Federal Reserve Bank of Minneapolis 619, Federal Reserve Bank of Minneapolis.
  2. Harold L. Cole & Lee E. Ohanian & Ron Leung, 2005. "Deflation and the International Great Depression: A Productivity Puzzle," NBER Working Papers 11237, National Bureau of Economic Research, Inc.
  3. Ebell, Monique & Haefke, Christian, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute for the Study of Labor (IZA).
  4. V.V. Chari & Patrick J. Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," NBER Working Papers 10351, National Bureau of Economic Research, Inc.
  5. Frederic S. Mishkin & Eugene N. White, 2002. "U.S. Stock Market Crashes and Their Aftermath: Implications for Monetary Policy," NBER Working Papers 8992, National Bureau of Economic Research, Inc.
  6. Michael D. Bordo & Christopher J. Erceg & Charles N. Evans, 1997. "Money, Sticky Wages, and the Great Depression," NBER Working Papers 6071, National Bureau of Economic Research, Inc.
  7. Lawrence J. Christiano & Roberto Motto & Massimo Rostagno, 2004. "The Great Depression and the Friedman-Schwartz hypothesis," Working Paper 0318, Federal Reserve Bank of Cleveland.
  8. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 257-76, June.
  9. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2003. "Accounting for the Great Depression," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-8.
  10. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 27(1), pages 1-28, February.
  11. Harold L. Cole & Lee E. Ohanian, 2001. "The great U.K. depression: a puzzle and possible resolution," Staff Report, Federal Reserve Bank of Minneapolis 295, Federal Reserve Bank of Minneapolis.
  12. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198284345, October.
  13. Raff, Daniel M G & Summers, Lawrence H, 1987. "Did Henry Ford Pay Efficiency Wages?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 5(4), pages S57-86, October.
  14. Harold L. Cole & Lee E. Ohanian, 2004. "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(4), pages 779-816, August.
  15. Romer, Christina, 1986. "Spurious Volatility in Historical Unemployment Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(1), pages 1-37, February.
  16. Romer, Christina D, 1990. "The Great Crash and the Onset of the Great Depression," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(3), pages 597-624, August.
  17. Hamermesh, Daniel S & Pfann, Gerard Antonie, 1996. "Adjustment Costs in Factor Demand," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1371, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fabien Tripier, 2009. "Elasticity of factor substitution and the rise in labor's share of income during the Great Depression," Working Papers hal-00419343, HAL.
  2. Pooyan Amir Ahmadi & Albrecht Ritschl, 2009. "Depression econometrics: a FAVAR model of monetary policy during the Great Depression," Economic History Working Papers, London School of Economics and Political Science, Department of Economic History 27878, London School of Economics and Political Science, Department of Economic History.
  3. Natacha Postel-Vinay, 2011. "From a “normal recession” to the “Great Depression”: finding the turning point in Chicago bank portfolios, 1923-1933," Economic History Working Papers, London School of Economics and Political Science, Department of Economic History 35518, London School of Economics and Political Science, Department of Economic History.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hum:wpaper:sfb649dp2007-006. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RDC-Team).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.