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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. Boyer, George & Hatton, Timothy J., 2001. "New Estimates of British Unemployment, 1870-1913," CEPR Discussion Papers 2814, C.E.P.R. Discussion Papers.
  2. Belot, Michèle & van Ours, Jan C, 2000. "Does the Recent Success of some OECD Countries in Lowering their Unemployment Rates lie in the Clever Design of their Labour Market Reforms?," CEPR Discussion Papers 2492, C.E.P.R. Discussion Papers.
  3. repec:ucp:bkecon:9780226251271 is not listed on IDEAS
  4. 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.
  5. Hatton, Timothy J., 2002. "Can Productivity Growth Explain NAIRU? Long-run Evidence from Britain, 1871-1999," CEPR Discussion Papers 3424, C.E.P.R. Discussion Papers.
  6. Ohanian, Lee E., 2009. "What - or who - started the great depression?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2310-2335, November.
  7. Albrecht Ritschl & Monique Ebell, 2007. "Real Origins of the Great Depression: Monopoly Power, Unions and the American Business Cycle in the 1920s," 2007 Meeting Papers 712, Society for Economic Dynamics.
  8. 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.
  9. 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.
  10. 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.
  11. 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," The Institute for International Integration Studies Discussion Paper Series iiisdp303, IIIS.
  12. 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.
  13. Fishback, Price V., 2007. "Government and the American Economy," University of Chicago Press Economics Books, University of Chicago Press, edition 0, number 9780226251288.
  14. 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.
  15. 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.
  16. Bernanke, Ben S & Carey, Kevin, 1996. "Nominal Wage Stickiness and Aggregate Supply in the Great Depression," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 853-83, August.
  17. 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, 07.
  18. 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.
  19. Beenstock, Michael & Warburton, Peter J, 1986. "The Market for Labour in Interwar Britain," CEPR Discussion Papers 105, C.E.P.R. Discussion Papers.
  20. 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.
  21. Broadberry, S N, 1986. "Aggregate Supply in Interwar Britain," Economic Journal, Royal Economic Society, vol. 96(382), pages 467-81, June.
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