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Labour Markets in the Interwar Period and Economic Recovery in the UK and the USA

  • Hatton, Timothy J.
  • Thomas, Mark

We examine the labour market experience of the UK and the US in the recessions of the early 1920s and the early 1930s and the subsequent recoveries. These were deep recessions, comparable to that of 2008-9, but the recoveries were very different. In the UK the recovery of the 1920s was incomplete but that of the 1930s was rather less protracted than in the US. By contrast the US experienced very strong recovery in the 1920s but weaker recovery from the much deeper recession of the 1930s. A key ingredient to understanding these patterns is the interaction between economic shocks and labour market institutions. Here we survey the large literature on interwar labour markets to identify the key elements that underpinned labour market performance. We find that developments in wage setting institutions and in unemployment insurance inhibited a return to full employment in interwar Britain while in the US, New Deal legislation impeded labour market adjustment in the 1930s. We conclude with an assessment of the policy responses to labour market crises in the past and in the present.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7983.

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Date of creation: Sep 2010
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Handle: RePEc:cpr:ceprdp:7983
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  1. Hatton, Timothy J & Bailey, Roy E, 2002. "Unemployment Incidence in Interwar London," Economica, London School of Economics and Political Science, vol. 69(276), pages 631-54, November.
  2. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
  3. Ohanian, Lee E., 2009. "What - or who - started the great depression?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2310-2335, November.
  4. Beenstock, Michael & Warburton, Peter, 1991. "The market for labor in interwar Britain," Explorations in Economic History, Elsevier, vol. 28(3), pages 287-308, July.
  5. Fishback, Price V., 2007. "Government and the American Economy," University of Chicago Press Economics Books, University of Chicago Press, edition 0, number 9780226251288, February.
  6. Boyer, George R. & Hatton, Timothy J., 2002. "New Estimates Of British Unemployment, 1870 1913," The Journal of Economic History, Cambridge University Press, vol. 62(03), pages 643-675, September.
  7. Michael D. Bordo & John Landon-Lane, 2010. "Exits from Recessions: The U.S. Experience 1920-2007," NBER Working Papers 15731, National Bureau of Economic Research, Inc.
  8. Christopher Hanes, 2000. "Nominal Wage Rigidity and Industry Characteristics in the Downturns of 1893, 1929, and 1981," American Economic Review, American Economic Association, vol. 90(5), pages 1432-1446, December.
  9. Carmen M. Reinhart & Vincent R. Reinhart, 2009. "When the North Last Headed South: Revisiting the 1930s," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 251-276.
  10. Ben S. Bernanke & Kevin Carey, 1996. "Nominal Wage Stickiness and Aggregate Supply in the Great Depression," NBER Working Papers 5439, National Bureau of Economic Research, Inc.
  11. Wallis, John Joseph & Benjamin, Daniel K., 1981. "Public Relief and Private Employment in the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 41(01), pages 97-102, March.
  12. Michael D. Bordo & Claudia Goldin & Eugene N. White, 1998. "The Defining Moment: The Great Depression and the American Economy in the Twentieth Century," NBER Books, National Bureau of Economic Research, Inc, number bord98-1, Jan-Jun.
  13. Hatton, T J, 1988. "A Quarterly Model of the Labour Market in Interwar Britain," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(1), pages 1-25, February.
  14. Timothy J. Hatton, 2007. "Can Productivity Growth Explain the NAIRU? Long-Run Evidence from Britain, 1871-1999," Economica, London School of Economics and Political Science, vol. 74(295), pages 475-491, 08.
  15. Miguel Almunia & Agustín S. Bénétrix & Barry Eichengreen & Kevin H. O'Rourke & Gisela Rua, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," NBER Working Papers 15524, National Bureau of Economic Research, Inc.
  16. Broadberry, S N, 1986. "Aggregate Supply in Interwar Britain," Economic Journal, Royal Economic Society, vol. 96(382), pages 467-81, June.
  17. Fishback, Price V. & Horrace, William C. & Kantor, Shawn, 2005. "Did New Deal Grant Programs Stimulate Local Economies? A Study of Federal Grants and Retail Sales During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 65(01), pages 36-71, March.
  18. Hatton, T J, 1988. "Institutional Change and Wage Rigidity in the UK, 1880-1985," Oxford Review of Economic Policy, Oxford University Press, vol. 4(1), pages 74-86, Spring.
  19. repec:ucp:bkecon:9780226251271 is not listed on IDEAS
  20. Ben S. Bernanke & Kevin Carey, 1996. "Nominal Wage Stickiness and Aggregate Supply in the Great Depression," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 853-883.
  21. 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 441-78, June.
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