Year | Unemployment RateI 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%.
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).
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.
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.
I cannot seem to find the paper online for free. Sometime today I will go to my library (who owns all sorts of journal subscriptions) and look at it there.
"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."ReplyDelete
The Sherman Silver Purchase Act of 1890 required the treasury to double their purchases of silver. They had to start buying 4.5 million ounces of silver a month. With what? With new issues of redeemable greenback currency of course!
Also, the NY treasury changed its practice of settling its balances in gold. In
1890, it began using the greenbacks and the new Treasury notes of 1890. Consequently, this paper money largely replaced gold in customs receipts.
The uneasiness about the abrupt change from gold to silver, and the continuing silverite movement, led to foreigners losing more and more confidence in the US's gold standard, and that resulted in a drop in capital investments in the country and large gold outflows out of the country. This was persistent for much of the 1890s.
In 1893, the Wilson–Gorman Tariff Act slightly reduced the tariffs that were imposed in 1890 through the McKinley Tariff Act, but more importantly, the Act saw the government imposing a new income tax on incomes over $4,000 (or $88,100 in 2010 dollars).
Then in 1891, the Treasury abruptly imposed a tax on the export of gold bars, so that most gold exported from then on was gold coin instead of gold bars. A shock went through the financial markets, in the US and abroad, when the Senate passed a free silver coinage bill in 1892. The bill did not become law, but it was enough to thoroughly shake confidence in the US financial markets.
Exporting gold continued into 1892, and the Treasury’s gold reserve declined, and, like clockwork, a run on the US Treasury ensued. In desperation, in February 1893, the Treasury got the New York banks to return the gold and reacquire the paper.
But it was too late. In April 1893, the stock market collapsed, and one month later, in May 1893, distrust of FR banks led to widespread bank runs and bank failures. And once again, the government allowed the FR banks to suspend specie payment.
Even a Post Keynesian would know that a bust, in combination with capital and gold (money) outflow, in combination with higher taxes, in combination with FR bank runs, in combination with bank failures, can be somewhat bad for the employment picture.
(1)"The Sherman Silver Purchase Act of 1890 required the treasury to double their purchases of silver."ReplyDelete
The Sherman Silver Purchase Act, passed in 1890, caused a recession in 1896 did it? – and further high unemployment until 1899?? Even though it was repealed in 1893 by Grover Cleveland?
"In 1893, the Wilson–Gorman Tariff Act slightly reduced the tariffs that were imposed in 1890 through the McKinley Tariff Act, but more importantly, the Act saw the government imposing a new income tax on incomes over $4,000 (or $88,100 in 2010 dollars). "
The Tariff act was pass on August 27, 1894 - not 1893.
And the income tax provision was struck down in 1895 by the U.S. Supreme Court, before the double dip recession of 1896.
In any case, we can note that at 2% on income over $4,000 or, as you say, $88,100 (in 2010 dollars) it was not regressive.
And was it even imposed in 1894? Did anyone ever pay it?
"Even a Post Keynesian would know that a bust, in combination with capital and gold (money) outflow, in combination with higher taxes, in combination with FR bank runs, in combination with bank failures, can be somewhat bad for the employment picture."
Actually I am well aware of facts you mention: I've already discussed it here:
But the issues you mention don't explain why unemployment was persistently high after 1896.
A couple things I noticed when reading Vernon's paper.
From my understanding of his econometric methods, his unemployment rates are calculated by measuring deviations from potential GNP with real GNP (given by Balke and Gordon)/using benchmark years and Okun's Law. "In effect, deviations of the unemployment rate from the natural rate of unemployment were estimated as a function of percentage deviations of real GNP from potential output, as in Okun's Law." (p. 705).
1)I couldn't fit his exact "calculation" for the quantitative estimated deviation with unemployment and real GNP, but might question its veracity due to its value being computed when prices could have been more sticky.
2)He uses the Balke and Gordon estimates, which are more volatile than Romers. Balke and Gordon's estimates, due to the fact that they include transportation (railroads), construction, and services, would almost be a prior more volatile (to the Austrians) because of their movements during the boom and busts, etc etc (Austrians would say railroads and construction are more volatile due to their sensitivity with the interest rate and their status as "long term" projects). So, with Balke and Gordon's additional computations, the Panic of 1873, especially the period after, might be overstated, because it was well known that railroads were particularly hit bad in these areas.
However, there were certainly other measures of production improving in the 1870s, that I'm not sure are incorporated in Balke and Gordon's estimates. To take a passage from Charles Morris' "Tycoons"
"Tonnage measures of food production and consumption grew spectacularly. The volume of grains and cotton consumed at home increased by 50 percent, while exports of wheat were up threefold, corn fourfold, and cotton by 60 percent. Per capita beef consumption increased by 20 percent, while exports shot up ninefold." (p.102-103).
However, in later pages after painting this rosy picture, Morris writes how the railroads struggled during this time. So, if certain output sectors that are naturally more volatile (railroad and construction) are included while others are not (perhaps due to poor data collection or something), then naturally the GNP series will appear more volatile and the depressions more protracted.
And it is important to note that if, say Romer's estimates were used, then GNP fell much less during these years, and thus unemployment (which Vernon estimates as a function of declines in GNP) would be much less too.
This is all based on my reading of the paper and my recollection of reading my past papers.