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Employment, Hours, and Earnings in the Depression: An Analysis of EightManufacturing Industries

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  • Ben S. Bernanke

Abstract

This paper employs monthly, industry-level data in a study of Depression-era labor markets. The underlying analytical framework is one in which, as in Lucas (1970), employers can vary total labor input not only by changing the number of workers but also by varying the length of the work-week. This framework appears to be particularly relevant to the 1930s, a period in which both employment and hours of work fluctuated sharply. With aggregate demand treated as exogenous, it is shown that an econometric model based on this framework, in conjunction with some additional elements (notably, the adjustment of workers' pay to permanent but not transitory variations in the cost of living, and the effects of New Deal legislation) can provide a good explanation of the behavior of the keytime series. In particular, the empirical model is able to explain the puzzle of increasing real wages during a period of high unemployment.

Suggested Citation

  • Ben S. Bernanke, 1985. "Employment, Hours, and Earnings in the Depression: An Analysis of EightManufacturing Industries," NBER Working Papers 1642, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1642
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    1. Lucas, Robert E, Jr, 1970. "Capacity, Overtime, and Empirical Production Functions," American Economic Review, American Economic Association, vol. 60(2), pages 23-27, May.
    2. Ashenfelter, Orley, 1980. "Unemployment as Disequilibrium in a Model of Aggregate Labor Supply," Econometrica, Econometric Society, vol. 48(3), pages 547-564, April.
    3. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
    4. Altonji, Joseph & Ashenfelter, Orley, 1980. "Wage Movements and the Labour Market Equilibrium Hypothesis," Economica, London School of Economics and Political Science, vol. 47(187), pages 217-245, August.
    5. Rosen, Harvey S & Quandt, Richard E, 1978. "Estimation of a Disequilibrium Aggregate Labor Market," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 371-379, August.
    6. Plessner, Yakir & Yitzhaki, Shlomo, 1983. "Unemployment and Wage Rigidity: The Demand Side," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 202-212, July.
    7. R. J. Ball & E. B. A. St Cyr, 1966. "Short Term Employment Functions in British Manufacturing Industry," Review of Economic Studies, Oxford University Press, vol. 33(3), pages 179-207.
    8. Joseph G. Altonji, 1982. "The Intertemporal Substitution Model of Labour Market Fluctuations: An Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 49(5), pages 783-824.
    9. Rees, Albert, 1970. "On Equilibrium in Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 306-310, March-Apr.
    10. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    11. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-276, June.
    12. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-538, June.
    13. M. S. Feldstein, 1967. "Specification of the Labour Input in the Aggregate Production Function," Review of Economic Studies, Oxford University Press, vol. 34(4), pages 375-386.
    14. F. P. R. Brechling, 1965. "The Relationship between Output and Employment in British Manufacturing Industries," Review of Economic Studies, Oxford University Press, vol. 32(3), pages 187-216.
    15. Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-1044, December.
    16. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-754, Sept./Oct.
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