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The Great U.K. Depression: A Puzzle and Possible Resolution

Author

Listed:
  • Harold L. Cole

    (University of California, Los Angeles)

  • Lee E. Ohanian

    (University of California, Los Angeles)

Abstract

The UK was depressed for 20 years between the two World Wars. The decrease in output was entirely due to lower hours per worker and lower employment. Our main finding is that generous unemployment benefits, in conjunction with large negative sectoral shocks, is the most plausible candidate explanation for this depression. We also find that the conventional Keynesian monetary story for this period is unconvincing. (Copyright: Elsevier)

Suggested Citation

  • Harold L. Cole & Lee E. Ohanian, 2002. "The Great U.K. Depression: A Puzzle and Possible Resolution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 19-44, January.
  • Handle: RePEc:red:issued:v:5:y:2002:i:1:p:19-44
    DOI: 10.1006/redy.2001.0140
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    References listed on IDEAS

    as
    1. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    2. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    3. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    4. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    5. Eichengreen, Barry, 1987. "Unemployment in Interwar Britain: Dole or Doldrums?," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 597-623, December.
    6. Harold L. Cole & Lee E. Ohanian, 2002. "The Great U.K. Depression: A Puzzle and Possible Resolution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 19-44, January.
    7. Harold L. Cole & Lee E. Ohanian, 2001. "Re-Examining the Contributions of Money and Banking Shocks to the U.S. Great Depression," NBER Chapters,in: NBER Macroeconomics Annual 2000, Volume 15, pages 183-260 National Bureau of Economic Research, Inc.
    8. Benjamin, Daniel K & Kochin, Levis A, 1982. "Unemployment and Unemployment Benefits in Twentieth-Century Britain: A Reply to Our Critics [Searching for an Explanation of Unemployment in Interwar Britain]," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 410-436, April.
    9. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24.
    10. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-963, June.
    11. Maki, Dennis R & Spindler, Zane A, 1975. "The Effect of Unemployment Compensation on the Rate of Unemployment in Great Britain," Oxford Economic Papers, Oxford University Press, vol. 27(3), pages 440-454, November.
    12. Metcalf, David & Nickell, Stephen J & Floros, Nicos, 1982. "Still Searching for an Explanation of Unemployment in Interwar Britain," Journal of Political Economy, University of Chicago Press, vol. 90(2), pages 386-399, April.
    13. Benjamin, Daniel K & Kochin, Levis A, 1979. "Searching for an Explanation of Unemployment in Interwar Britain," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 441-478, June.
    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, vol. 112(4), pages 779-816, August.
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    More about this item

    Keywords

    unemployment benefits; sectoral shocks; workweek restriction;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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