US Unemployment Graph, 1869–1899

The following graph shows the unemployment rate in the US from 1869 to 1899 (Blogger has cut off the right edge, but the graph data is still clear). The estimates are taken from Vernon (1994), although other estimates for the 1890s put unemployment at higher levels.



The blue line at 4% is the upper limit of full employment, which is usually defined as less than 1% up to 4%. Rarely did unemployment fall below 4% in the late 19th century.

Of especial interest is the spike in unemployment from 1875–1878, for the real GNP estimates of Balke and Gordon show positive GNP growth rates in these years.

What went wrong with the US economy?

One possibility is that the real GNP estimates of Balke and Gordon are wrong.

Certainly, the relevant data from Davis’s US industrial output index show an industrial recession from 1873 to 1875:

US Industrial Index, 1870–1880
Index base is 1849–1850 = 100
Year | Index
1870 | 242.97
1871 | 255.29
1872 | 275.74
1873 | 302.17
1874 | 300.7
1875 | 284.2
1876 | 294.0
1877 | 297.8
1878 | 314.0
1879 | 356.4
1880 | 400.9
(Davis 2004: 1189).

This data is presented below in graph form. You can see the manufacturing recession and subsequent stagnation.



From 1873, industrial output fell, mildly in 1874, but sharply in 1875. Davis (2004: 1203) finds that the cumulative industrial index loss (-10.83) was the second worst of the late 19th century, and only surpassed by the double dip recession of the 1890s.

By the 1870s the industrial sector of the US economy was large enough to be a good index of real GDP movements, and Davis finds that the US had a recession from 1873 to 1875 lasting less than 3 years.

A brief recovery in industrial output happened in 1876, but there was stagnation in 1877.

So, all in all, the rising unemployment until 1878 looks like the result of a severe recession from 1873 to 1875, poor recovery, and then stagnation in 1877 (perhaps a double dip recession in the mid to late 1870s is another possibility).


BIBLIOGRAPHY

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Davis, Joseph H. 2004. “An Annual Index of U. S. Industrial Production, 1790-1915,” The Quarterly Journal of Economics 119.4: 1177–1215.

Davis, Joseph H. 2006. “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66.1: 103–121.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.

US Unemployment, 1869–1899

There are a number of estimates of US unemployment in the late 19th century. One of the widely-cited estimates is that of J. R. Vernon (1994):

Year | Unemployment Rate
1869 | 3.97%
1870 | 3.52%
1871 | 3.66%
1872 | 4.00%
1873 | 3.99%
1874 | 5.53%
1875 | 5.83%
1876 | 7.00%
1877 | 7.77%
1878 | 8.25%
1879 | 6.59%
1880 | 4.48%
1881 | 4.12%
1882 | 3.29%
1883 | 3.48%
1884 | 4.01%
1885 | 4.62%
1886 | 4.72%
1887 | 4.30%
1888 | 5.08%
1889 | 4.27%
1890 | 3.97%
1891 | 4.34%
1892 | 4.33%
1893 | 5.51%
1894 | 7.73%
1895 | 6.46%
1896 | 8.19%
1897 | 7.54%
1898 | 8.01%
1899 | 6.20%
(Vernon 1994: 710).

I have highlighted in yellow those years where unemployment was over 5% and the years where unemployment showed a tendency to rise when it was above 5%.

According to the figures of Balke and Gordon (1989: 84), the US had negative GNP growth in 1874, 1888, 1893–1894, and 1896. There is a correlation between these recessions and rising unemployment in Vernon’s estimates.

But more puzzling is the marked rise in unemployment in the 1875–1878 and 1894–1898 periods.

While the double dip recession of the 1890s would explain the rising unemployment from 1893–1896, there was stubbornly high unemployment until 1898.

According to the GNP estimates of Balke and Gordon, the US had positive GNP growth rates from 1875–1878, yet unemployment rose in this period. Earlier estimates of GNP showed that the US economy experienced a recession in these years, with the NBER data showing the longest recession in US history from October 1873 to March 1879 (a 65 month recession). At the very least, there appears to have been contraction in certain important sectors.

This confirms that something was wrong with the US economy in these years, and that revised annual GNP estimates do not necessarily give us an accurate picture of the health of the economy on their own.


BIBLIOGRAPHY

Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.

Vernon, J. R. 1994. “Unemployment Rates in Post-Bellum America: 1869–1899,” Journal of Macroeconomics 16: 701–714.