Wednesday, July 3, 2013

US Unemployment in the 1930s

US unemployment statistics for the 1930s are normally taken from the standard Bureau of Labor Statistics (BLS) data based on the work of Stanley Lebergott (1964).

A serious problem with this standard data is that it significantly overestimates unemployment because it excludes emergency workers employed in US federal government programs like the Civilian Conservation Corps (CCC, April 1933–June 1943), the National Youth Administration (NYA, January 1936–May 1943), the Civil Works Administration (CWA, November 1933–July 1934), the Emergency Work-Relief Program (April 1934–December 1935) of the Federal Emergency Relief Administration (FERA), and the Works Progress Administration (WPA, July 1935–June 1943) (Darby 1976: 4). Most of these were full-time jobs in construction projects and public works (Darby 1976: 4).

First, the conventional BLS unemployment data can be seen below.

This can also be seen in table form:
Year | Unemployment Rate
1929 | 3.2%
1930 | 8.7%
1931 | 15.9%
1932 | 23.6%
1933 | 24.9%
1934 | 21.7%
1935 | 20.1%
1936 | 16.9%
1937 | 14.3%
1938 | 19.0%
1939 | 17.2%
1940 | 14.6%
1941 | 9.9%
1942 | 4.7%
1943 | 1.9%
(Darby 1976: 8).
In these figures, we see that unemployment fell from 24.9% in 1933 to 14.3% in 1937. That was a significant fall during the moderate fiscal stimulus employed by Roosevelt, and it essentially shows us private sector employment growth.

But it is still a serious overestimate of real unemployment rates. Now let us look at the corrected data for unemployment in Darby (1976: 8), by including employment provided by US federal government programs.

Again, this can also be seen in table form:
Year | Unemployment Rate
1929 | 3.2%
1930 | 8.7%
1931 | 15.3%
1932 | 22.5%
1933 | 20.6%
1934 | 16.0%
1935 | 14.2%
1936 | 9.9%
1937 | 9.1%
1938 | 12.5%
1939 | 11.3%
1940 | 9.5%
1941 | 6.0%
1942 | 3.1%
1943 | 1.8%
(Darby 1976: 8).
When employment provided by federal relief work is included in the employment figures, unemployment under Roosevelt came down from 20.6% in 1933 just under 9.9% by 1936 – a quite significant fall.

In fact, both data sets show us a significant fall in unemployment which occurred during the recovery under Roosevelt.

The fundamental point is this: if Roosevelt had not turned to austerity in 1937 the US was on track for a return to full employment by 1939. Many of the public programs could have been reduced too as private sector demand for labour would have transferred people from the public to private sector.

We can see this by looking at the revised graph with a rough trend line for falling unemployment added.

But instead of pursuing continuing fiscal stimulus or (better still) increased stimulus, Roosevelt turned to budget balancing and contractionary fiscal and monetary policy in 1937, and the result was that he induced a second recession from 1937 to 1938 (the so-called “Roosevelt recession”).

This is the fundamental lesson ignored by Austrians, libertarians and other critics of Keynesianism.

Further Reading
Mitchell, B., “What causes mass unemployment?,” January 11th, 2010.

“(Very) short reading list: unemployment in the 1930s,” October 10, 2008.

Darby, M. R. 1976. “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–1941,” Journal of Political Economy 84.1: 1–16.

Lebergott, S. 1964. Manpower in Economic Growth: The American Record since 1800. McGraw-Hill, New York.


  1. Philip PilkingtonJuly 3, 2013 at 8:20 PM

    Hey, LK, a bit off-topic, but I started a blog that you might like.

    Actually I started it in 2010 but stopped using it a while back. It's open for business again though.

  2. Heyy, so, a bit off topic but.. Monetary Realism (MR) comes out of the closet officially as a PKE point of view (although Sandowski more or less hinted it the entire time):

    I've really gotta pick up and read Monetary Economics some day..

  3. "if Roosevelt had not turned to austerity in 1937 the US was on track for a return to full employment by 1939."

    According to David Glasner, the economy was already on its way to recovery in mid-1933, as Industrial Production rose rapidly in tandem with the Producer Price Index (PPI) rise following Roosevelt's suspension of the gold standard March.

    However, in his view, what stopped the incipient recovery was the Nat'l Industrial Recovery Act and other intervention in the economy which raised nominal wages.

  4. You've ignored a very important real world detail in this data. The data you're using and charting a projected path for assumes that the emergency public works programs can continue to find a similarly increased ammount of work for the remaining 10 percent of the population that needed work in 1936, while private sector employment continued at a similar rate. The end goal of FDR's policies was to remove dependency on the government. Thus his budgetary balancing started ending emergency programs to move those that relied on the government into the pricate sector, a goal that was clearly accomplished with a great deal of success since the difference in unemployment rates between the two data sets you've provided is a mere 0.1% in 1943 as opposed to a 7% difference in 1936 (before your indicated turning point of 1937) Meaning that in the end after recovery was completed, only 0.1% of the people that worked on public works projects instituted by the federal government between 1932 and 1943 remained in those temporary programs. You've used this data to incorrectly argue against libertarianism when in reality it was Roosevelts faith in the free market that allowed him to turn the nation around. Stimulus and government aid is necesary at times, but ultimately people, and the economy, should be largely self sufficient and should not rely on the government to help them.

    It could even be argued that if we were to balance our budget and create a surplus we could create a source of income by lending that money to other nations. Thus giving the federal government a larger, balanced budget, able to provide even more funding to infrastructure, assisstance to those that need it in whatever form necesary, and any other causes that may need economic attention at any given moment in history.

    If you look at the Chinese economic model that is essentially what they do. They own portions of the bussinesses and collect the revenue from them, they then use this revenue to pay their people, accomplish social projects, and lend money to other nations, generating even more income. China's federal government, one of the most successful communist regimes in history, is functioning (economically) as a giant libertarian monopolistic company might, free to do what they want, when they want and how they want, giving and taking from whoever they want at will. The difference between them and actual libertarians is that the power is not in the hands of the government but in the hands of the people. As is the slogan of the American Libertarian party, we are fiscally conservative and socially liberally. If you think that FDR did a poor job by moving the private employment rate from ~24% to ~2% in 7 years using temporary goverment relief to spur private enterprise then I don't know what you expect, but if you thought he did a good job, you really probably ought to re-evaluate your political allegiances and consider the long term goals of current politicians. Most people I think may find that the goals of the libertarian party and the general principles that are actually applied that help the country generally line up fairly well.