Weir on Historical Estimates of US Unemployment

Weir (1992) provides a fascinating review of estimates of US unemployment levels before official US government statistics began to be gathered in 1940.

Lebergott’s Manpower in Economic Growth: The American Record since 1800 (1964) is the major study that tried to estimate unemployment in the 19th century and until the 1930s, but has been criticised on a number of grounds.

In particular, Romer (1986) alleged that Lebergott’s method introduced a spurious volatility in his unemployment estimates.

Weir (1992) outlines these criticisms and reviews Lebergott’s work. Weir’s overall findings are that (1) Lebergott’s data had considerably less spurious volatility than Romer thought, and (2) there has been an impressive stabilisation of US unemployment since 1945.

Weir (1992: 302, 322) agrees with Darby (1976) that Lebergott’s estimates of unemployment in the 1930s are inflated by the fact that government relief workers in this period (many of whom had a type of full time work) were classified as unemployed. Therefore Darby’s (1976) revision of Lebergott’s unemployment estimates is justified.

Moreover, Weir also argues that Lebergott’s (1964: 182) use of Frickey’s index of manufacturing employment for his estimates from 1890 to 1900 resulted in an overestimation of unemployment for these years (Weir 1992: 319).

Although Weir’s revised estimates for the 1890s are lower than Lebergott’s, nevertheless Weir’s figures confirm that unemployment was protracted and high in the 1890s.

Weir’s new unemployment estimates come in two forms, as follows:

(1) a standard civilian unemployment rate (deducting employment in the armed forces), and

(2) a “private nonfarm unemployment” rate that deducts agricultural and government employment.

A graph of these unemployment rates from 1890 to 1990 can be seen below.

It can be seen that pre-1939 unemployment rates and pre-1914 unemployment rates were far more volatile than the post-1945 period of modern macroeconomic management (Weir 1992: 323), and, above all, the period of Keynesian demand management from 1945 to the mid-1970s.

The greater volatility in the pre-1939 era can be seen very clearly in the private nonfarm unemployment rate.

Although the 1890s has a lower unemployment rate than Lebergott’s older estimates, nevertheless the economic problems in that era and the protracted recession are seen in the high private nonfarm unemployment rate.

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.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

US Unemployment in the 1890s: Who is Right?

There are three estimates of US unemployment in the 1890s, as follows:

(1) Lebergott’s estimates of the unemployment rate;
(2) those of Romer (1986: 31), and
(3) those of Vernon (1994: 710).

We can see them below in the following graph.

These are quite seriously divergent estimates and the question arises: who is right?

There is an important question here about whether movements in the labour force – especially involving women – were pro-cyclical or countercyclical in the 19th century.

If labour force participation rates were countercyclical in the sense of rising during recessions, then this added to unemployment rates, as women, young adults, and perhaps even children went out and looked for employment when their husband/fathers/breadwinners lost employment. If this assumption is correct, then Lebergott’s estimates may be better ones for unemployment rates.

This is the conclusion of James and Thomas (2007: 38–39):

“Together with the results of the cross-section regression on city-wide labor force participation, this casts serious doubt on the plausibility of procyclical labor force behavior before 1914.

These empirical results make sense from the historian’s perspective. In a period before social security and unemployment insurance, the notion of an added worker effect among secondary workers is surely more persuasive than a discouraged worker effect. Similarly, the absence of pronounced procyclicality in labor productivity fits the historical image of a labor market characterized by spot markets, with rapid turnover and limited adherence to internal labor markets.” (James and Thomas 2007: 39).

“Before 1914, the labor market worked such that business cycle downturns spread unemployment over a larger share of the labor force; in the postwar period, recessions deepened the length of time out of work for the smaller proportion who lost their jobs.

These results indicate that modern modes of labor market behavior were not typical of the pre-1914 US; by extension, it must be that the twentieth century has seen significant changes in the nature of the labor market. But they also carry implications for the debate over stabilization since 1948. In particular, they cast considerable doubt on Romer’s claims that the measured decline in unemployment volatility was a statistical artifact created by the procedures used to construct the historical series. The assumption of a unitary elasticity of employment to output does not seem out of place for the period before 1914; if anything, the appearance of an added worker effect before 1914 suggests that Lebergott’s method of interpolating labor forces data between census benchmarks may have understated the degree of unemployment.” (James and Thomas 2007: 40–41).

The upshot of all this is that Romer’s assumption of procyclical movements in labour force participation rates before 1914 appears unrealistic, and her figures are therefore unreliable.

It seems to me that Vernon’s (1994) even lower estimates are also rendered unreliable by this, since Vernon assumes procyclical movements in labour force participation in the 19th century too, and simply adjusts Romer’s own unemployment data (Vernon 1994: 702, 709).

Despite the charge that Lebergott’s estimates of 1890s unemployment are based on limited data (namely, the Frickey employment index series covering industrial employment in Ohio and a number of northeastern states [Vernon 1994: 709]), nevertheless his figures may be more reliable than Romer’s or Vernon’s, and the 1890s – at least by this criterion – were a period of severe US unemployment and economic crisis comparable to the Great Depression.

This can be seen below in the graph of US unemployment in both the 1890s and 1930s.

First, we should ignore the Roosevelt recession of 1937–1938, because that was a policy-induced recession caused by austerity. Although unemployment in the 1930s did rise to a higher level, nevertheless the 1890s shock was very bad indeed, and employment growth appears to have stagnated from 1895 to 1897 (under a double dip recession). But, at this comparable point in the 1930s, as measured from the onset of the depression, US unemployment was falling sharply under the New Deal.

We can conclude that 19th-century capitalism under the gold standard was quite capable of delivering unemployment shocks comparable to the Great Depression, even if not quite as high, if we accept Lebergott’s estimates as reasonable.

Note
As an aside, this is also my 1000th post!

BIBLIOGRAPHY
James, J. A. and M. Thomas, 2007. “Romer Revisited: Long-Term Changes in the Cyclical Sensitivity of Unemployment,” Cliometrica 1.1: 19–44.

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

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

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

Weir, D. R. 1986. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability,” The Journal of Economic History 46.2: 353–365.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

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.

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.

US Unemployment in the 1890s

With all the talk of the recession of 1920–1921 at the moment (see here and here), there is another issue: the double dip recession of the 1890s.

Various Austrians are asserting that 1920–1921 proves that austerity can “quickly” end a recession. I have debunked that nonsense here, and the dishonest (or at least misleading) reference to a depression of 1920–1921, when there was no such thing, just a mild or moderate recession (depending on whether you use the revised data of (1) Romer or (2) Balke and Gordon).

Moreover, there was quite clearly a mild or moderate recession in the 1890s that completely contradicts the Austrians’ belief that austerity leads to rapid prosperity and high employment.

I. The GNP Data
According to the figures of Balke and Gordon, 1890s America suffered a double dip recession, with contractions in real GNP from 1893–1894 and 1896.

Balke and Gordon’s estimates for real GNP are here (the GNP growth rates are my own calculations):

Year | GNP* | Growth Rate
1890 | $183.9 | 1.43%
1891 | $189.9 | 3.26%
1892 | $198.8 | 4.68%
1893 | $198.7 | -0.05%
1894 | $192.9 | -2.91%
1895 | $215.5 | 11.7%
1896 | $210.6 | -2.27
1897 | $227.8 | 8.16%
1898 | $233.2 | 2.37%
1899 | $260.3 | 11.6%
1900 | $265.4 | 1.95%
* Billions of 1982 dollars
(Balke and Gordon 1989: 84).

As we can see, according to these figures, the US had a moderate recession from 1893–1894 in which GNP fell by 2.96%, with a recovery in 1895, but a further serious recession in 1896 with real GNP falling by 2.27%.

II. Unemployment
What were the effects of these output shocks on employment? There are three estimates that have been done:

(1) Lebergott’s estimates of the unemployment rate.
(2) Romer (1986: 31):
(3) Vernon (1994: 710).

Here are Lebergott’s estimates of the unemployment rate:

Year | Unemployment Rate
1890 | 4.0%
1891 | 5.4%
1892 | 3.0%
1893 | 11.7%
1894 | 18.4%
1895 | 13.7%
1896 | 14.5%
1897 | 14.5%
1898 | 12.4%
1899 | 6.5%
1900 | 5.0%

By these figures, the unemployment rates were a disaster in the 1890s, but Lebergott’s figures are challenged by Romer (1986).

The revised figures in Romer are as follows:

Year | Unemployment Rate
1892 | 3.72%
1893 | 8.09%
1894 | 12.33%
1895 | 11.11%
1896 | 11.965
1897 | 12.43%
1898 | 11.62%
1899 | 8.66%
1900 | 5.00%
(Romer 1986: 31).

Even using Romer’s figures, the US economy did not return to high employment for nearly a decade after 1893.

Finally, here are Vernon’s (1994) figures:

Year | Unemployment Rate
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).

They are lower than Romer’s, but still in the high single digits.

So it does not matter what figures you use: the double dip recession of the 1890s led to high unemployment that persisted to the end of the decade. There was a period of protracted unemployment in the 1890s comparable to the aftermath of the Great Depression (in the years from 1933–1939).

III. Conclusions
An important point is that 1890s America had no central bank, government spending was a very small percentage of GDP (it fluctuated between 2.55% and 3.62% in the 1890s), and governments tended to pursue austerity in times of recession. In fact, US federal government spending fell from 1893 to 1896 and fell from $465.1 million in 1893 to $443.1 million by 1896, which was obviously contractionary fiscal policy. Yet the culmination of the fiscal contraction in 1896 saw the economy in recession again.

Above all – and I wish to emphasise this – the fiscal contraction from 1893-1896 is correlated with rising unemployment in both the unemployment estimates of Romer and Vernon. Even by Vernon’s figures unemployment remained at nearly 8% until 1898. In Lebergott’s original estimates, unemployment soared from 1892-1894, went down in 1895, but then surged again in 1896 and stayed at 14.5% in 1897. No estimates of unemployment give any support to the view that austerity returns a shocked economy to high employment quickly. Curiously, a quick look at the data on
US federal government spending shows that spending rose from 1897 to 1899, and that this is also correlated with falling unemployment in the estimates from 1897 to 1899.

As an aside, I note how utterly absurd it is for Austrians to invoke 1920–1921 as an (alleged) vindication of their theories, when in that period America had a central bank. By any definition, 1920–1921 was even less of a laissez faire system than 1890s America, so it should be less relevant than the 1890s.

If 1920–1921 can be invoked as some kind of “proof” that austerity works, then, with even greater reason, the 1890s should show the “proof” of austerity too. But it does no such thing: although there was some high real GNP growth after the double dip in 1896, this was not sufficiently high to bring unemployment down.

Why was this? After all, real GNP growth rates of 8.16% (in 1897) and 11.6% (in 1899) seem very high by the contemporary averages of the mature US economy.

But there is a crucial issue: the US was a newly industrialising economy in the late 19th century, and in this respect was very much like China in the last three decades. With a large reserve of urban labour, coming from the countryside and from overseas in the case of the US in the late 1800s, an industrialising economy requires very high growth rates to maintain employment levels. In the case of China, a GDP growth rate of less than 7–8% leads to serious unemployment:

“‘China needs a growth rate of at least 7 per cent to avoid massive unemployment’ (www.economist.com, 10 November 2008). ‘The original estimated for China’s minimum rate of growth, which was made in the mid-1990s, was 7 per cent’ (The Economist, 15 November 2008, p. 88).

More recently somewhat higher figures for minimum GDP growth have been mentioned. ‘Most economists estimate that 8 per cent growth is needed to prevent urban unemployment from rising, which could trigger demonstrations and undermine the country’s social stability’ (www.iht.com, 20 October 2008; IHT, 21 October 2008, IHT, 21 October 2008, p. 11).

‘The government is expected to supply a fiscal stimulus to keep growth above 8 per cent’ (The Economist, 11 October 2008, p. 110). ‘China's own leaders believe they need growth of at least 8 per cent a year to avoid painful unemployment’ (The Economist, 15 November 2008, p. 14).” (Jeffries 2011: 10).

In other words, a growth rate of less than 7% in China today is the functional equivalent of a recession for workers in terms of its effects on unemployment.

I suspect a similar phenomenon was going on in 19th century America: just because there were positive growth rates (even what seem like high ones in 1897 and 1899), it does not mean that unemployment was always falling or that the economy was booming.

A research question I would propose is: what level of real GNP growth was necessary in 1890s America to mop up idle labour and reduce high unemployment? If there was a certain level of positive GNP growth required to prevent falling unemployment, a moderate recession (in technical terms) with a contraction of 2.96% in GNP may well have been a disaster for employment levels. In fact, it is possible that positive growth rates of 1%–4% may have been insufficient to maintain employment. All in all, this suggests to me that America’s actual GNP was well below its potential GNP in these years. This was not a healthy economy: it was an economy operating at well below its potential and no “proof” of the success of austerity at all. Rather, the 19th century, laissez faire policies of the US government were a disaster, above all in terms of unemployment.

It is no surprise to me that you do not see the Austrians appealing to the 1890s as an example of the wonders of the free market allegedly ending the aftermath of a recession, because on the metric of unemployment alone the 1890s completely contradict their absurd fantasies.

Appendix 1: Romer’s Figures for GNP in the 1890s

Romer’s estimates for real GNP are here (the GNP growth rates are my own calculations):

Year | GNP* | Growth Rate
1890 | $182.964 | 4.53%
1891 | $191.757 | 4.80%
1892 | $204.279 | 6.53%
1893 | $202.616 | -0.81%
1894 | $200.819 | -0.88%
1895 | $215.668 | 7.39%
1896 | $221.438 | 2.67%
1897 | $233.655 | 5.51%
1898 | $241.459 | 3.33%
1899 | $254.728 | 5.49%
1900 | $264.540 | 3.85%
* Billions of 1982 dollars
(Romer 1989: 22).

Romer’s figures show no contraction in 1896, and only a mild contraction in 1893–1894. Yet we know by all estimates unemployment soared in these years. What is going on? Romer’s estimates might be flawed. More likely, I think this supports the view that America in the late 19th century was very much like China today: just because growth rates were positive does not necessarily mean the economy was healthy, or that it was growing at its potential capacity.

Appendix 2: Were Movements in the Labour Force Pro-cyclical or Countercyclical in the 19th century?

There is the question whether movements in the labour force – especially involving women – were pro-cyclical or countercyclical in the 19th century. If it was countercyclical, this adds to unemployment, as women, young adults, and perhaps even children go out and look for employment when their husband/fathers/breadwinners lose employment (for literature, see James and Thomas 2007; Weir 1986, 1992). This is relevant for the method and accuracy of unemployment estimates in the 1890s.

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.

James, J. A. and M. Thomas, 2007. “Romer Revisited: Long-Term Changes in the Cyclical Sensitivity of Unemployment,” Cliometrica 1.1: 19–44.

Jeffries, I. 2011. Political Developments in Contemporary China: A Guide, Routledge, Oxon, England and New York.

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

Lebergott, S. 1964. Men Without Work: The Economics of Unemployment, Prentice-Hall, Englewood Cliffs, N.J.

Lebergott, S. 1986. “Discussion,” Journal of Economic History 46: 367-371.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

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

Weir, D. R. 1986. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability,” The Journal of Economic History 46.2: 353–365.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.

Why was US Unemployment so High in the 1890s?

Continuing on from the previous post, I wish to address this question. According to the figures of Balke and Gordon (1989: 84), the US had a moderate recession from 1893–1894 in which GNP fell by 2.96%, with a recovery in 1895, but a further serious recession in 1896 with real GNP falling by 2.27%, as we can see here (the annual growth rates are my own calculation):

Year GNP* Growth Rate
1890 $183.9 1.43%
1891 $189.9 3.26%
1892 $198.8 4.68%
1893 $198.7 -0.05%
1894 $192.9 -2.91%
1895 $215.5 11.7%
1896 $210.6 -2.27
1897 $227.8 8.16%
1898 $233.2 2.37%
1899 $260.3 11.6%
1900 $265.4 1.95%
* Billions of 1982 dollars

Average real GNP growth rate, 1890–1900: 3.62%.
(Balke and Gordon 1989: 84).

The unemployment figures in Romer (1986: 31) are as follows:

Year Unemployment Rate
1892 3.72%
1893 8.09%
1894 12.33%
1895 11.11%
1896 11.96%
1897 12.43%
1898 11.62%
1899 8.66%
1900 5.00%

I make the following points:

(1) There is a question here about whether movements in the labour force – especially involving women – were pro-cyclical or countercyclical in the 19th century. If it was countercyclical, this adds to unemployment, as women, young adults, and perhaps even children go out and look for employment when their husband/fathers/breadwinners lose employment (for relevant literature, see James and Thomas 2007; Weir 1986, 1992).

(2) There is also the issue of the effect of immigration on unemployment in these years. For example, America had immigration at this level in these years:

Years Average Yearly Total
1881–1893 525,102
1894–1899 276,547

http://eh.net/encyclopedia/article/cohn.immigration.us

Did these people find work?

(3) Another issue here is that the US was a newly industrialising economy in the late 19th century and in this respect was very much like China in the last three decades. With a large reserve of urban labour, coming from the countryside and from overseas in the case of the US in the late 1800s, an industrialising economy requires very high growth rates to maintain employment levels. In the case of China, a GDP growth rate of less than 7–8% leads to serious unemployment:

“‘China needs a growth rate of at least 7 per cent to avoid massive unemployment’ (www.economist.com, 10 November 2008). ‘The original estimated for China’s minimum rate of growth, which was made in the mid-1990s, was 7 per cent’ (The Economist, 15 November 2008, p. 88).

More recently somewhat higher figures for minimum GDP growth have been mentioned. ‘Most economists estimate that 8 per cent growth is needed to prevent urban unemployment from rising, which could trigger demonstrations and undermine the country’s social stability’ (www.iht.com, 20 October 2008; IHT, 21 October 2008, IHT, 21 October 2008, p. 11).

‘The government is expected to supply a fiscal stimulus to keep growth above 8 per cent’ (The Economist, 11 October 2008, p. 110). ‘China's own leaders believe they need growth of at least 8 per cent a year to avoid painful unemployment’ (The Economist, 15 November 2008, p. 14).” (Jeffries 2011: 10).

In other words, a growth rate of less than 7% in China today is the functional equivalent of a recession for workers in terms of its effects on unemployment. I suspect a similar phenomenon was going on in 19th century America: just because there were positive growth rates does not mean unemployment was always falling. A research question I would propose is: what level of real GNP growth was necessary in 1890s America to mop up idle labour and reduce high unemployment? If there was a certain level of positive GNP growth required to prevent falling unemployment, a moderate recession (in technical terms) with a contraction of 2.96% in GNP may well have been a disaster for employment levels. In fact, it is possible that positive growth rates of 1%–4% may have been insufficient to maintain employment. All in all, this suggests to me that America’s actual GNP was well below its potential GNP in these years.

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.

James, J. A. and M. Thomas, 2007. “Romer Revisited: Long-Term Changes in the Cyclical Sensitivity of Unemployment,” Cliometrica 1.1: 19–44.

Jeffries, I. 2011. Political Developments in Contemporary China: A Guide, Routledge, Oxon, England and New York.

Romer, C. D. 1986. “Spurious Volatility in Historical Unemployment Data,” Journal of Political Economy 94: 1–37.

Weir, D. R. 1986. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability,” The Journal of Economic History 46.2: 353–365.

Weir, D. R. 1992. “A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization,” Research in Economic History 14: 301–346.