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.

BIBLIOGRAPHY
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.