Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-16T17:45:19.881Z Has data issue: false hasContentIssue false

Explaining Anomalous Wage Inflation in the 1930s United States

Published online by Cambridge University Press:  31 December 2020

Christopher Hanes*
Affiliation:
Professor, Department of Economics, State University of New York at Binghamton, P.O. Box 6000, Binghamton, NY 13902. E-mail: chanes@binghamton.edu.

Abstract

Image of the first page of this content. For PDF version, please use the ‘Save PDF’ preceeding this image.'
Type
Article
Copyright
© The Economic History Association 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

This paper is derived from an earlier working paper “Monetary Policy Alternatives at the Zero Bound: Lessons from the 1930s U.S.” (March 2013). For comments and suggestions on that paper and the present version I thank William English, John Fernald, Price Fishback, James Hamilton, Andrew Jalil, Barry Jones, Edward Nelson, Gary Richardson, Eric Swanson, Susan Wolcott, and Wei Xiao. I would also like to thank participants at the Federal Reserve Bank of San Francisco conference “The Past and Future of Monetary Policy” (March 2013) and economic history workshops at Yale, Rutgers, and Colgate. Special thanks to Carola Binder for her news index from Binder (2016).

References

REFERENCES

Akerlof, George A., Dickens, William T., and Perry, George L.. “The Macroeconomics of Low Inflation.Brookings Papers on Economic Activity 1996, no. 1 (1996): 176.10.2307/2534646CrossRefGoogle Scholar
Alexander, Barbara. “The Impact of the National Recovery Act on Cartel Formation and Maintenance Costs.Review of Economics and Statistics 76, no. 2 (1994): 245–54.10.2307/2109879CrossRefGoogle Scholar
Allen, Steven G.Changes in the Cyclical Sensitivity of Wages in the United States, 1891–1987.American Economic Review 82, no. 1 (1992): 122–40.Google Scholar
Alogoskoufis, George S., and Ron Smith. “The Phillips Curve, the Persistence of Inflation and the Lucas Critique: Evidence from Exchange-rate Regimes.” American Economic Review 81, no. 5 (1991): 1254–75.Google Scholar
Balke, Nathan S., and Robert, J. Gordon. “Appendix B: Historical Data.” In The American Business Cycle: Continuity and Change, edited by Robert J. Gordon, 781–850. Chicago: University of Chicago Press for NBER, 1986.Google Scholar
Balke, Nathan S., and Robert, J. Gordon. “The Estimation of Prewar Gross National Product: Methodology and New Evidence.Journal of Political Economy 97, no. 1 (1989): 3892.CrossRefGoogle Scholar
Ball, Laurence. “Near-Rationality and Inflation in Two Monetary Regimes.NBER Working Paper No. 7988, Cambridge, MA, October 2000.Google Scholar
Ball, Laurence, and Mazumder, Sandeep. “A Phillips Curve with Anchored Expectations and Short-Term Unemployment.Journal of Money, Credit and Banking 51, no. 1 (2019): 111–37.10.1111/jmcb.12502CrossRefGoogle Scholar
Bank of Canada. “Renewal of the Inflation-Control Target: Background Information.” November 2011. Available at https://www.bankofcanada.ca/2011/11/bank-of-canada-releases-background-information/.Google Scholar
Barsky, Robert. “The Fisher Hypothesis and the Forecastability and Persistence of Inflation.Journal of Monetary Economics 19, no. 1 (1987): 324.10.1016/0304-3932(87)90026-2CrossRefGoogle Scholar
Barsky, Robert, and Bradford DeLong, J.. “Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard.Quarterly Journal of Economics 106, no. 3 (1991): 815–36.CrossRefGoogle Scholar
Beney, M. Ada. Wages, Hours and Employment in the United States 1914–1936. New York: National Industrial Conference Board, 1936.Google Scholar
Bernanke, Ben. “Monetary Policy in a New Era.Working Paper, Peterson Institute for International Economics, Washington, DC, October 2017.Google Scholar
Bernanke, Ben, Reinhart, Vincent R., and Sack, Brian P.. “Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment.Brookings Papers on Economic Activity 2004, no. 2 (2004): 178.10.1353/eca.2005.0002CrossRefGoogle Scholar
Bernstein, Irving. The Turbulent Years: A History of the American Worker 1933–1941. New York: Houghton-Mifflin, 1969.Google Scholar
Binder, Carola Conces.Estimation of Historical Inflation Expectations.Explorations in Economic History 61, no. 1 (2016): 131.10.1016/j.eeh.2016.01.002CrossRefGoogle Scholar
Blanchard, Olivier. “The US Phillips Curve: Back to the 60s?Peterson Institute for International Economics Policy Brief PB16-1, Washington, DC, January 2016.Google Scholar
Blanchard, Olivier, and Summers, Lawrence H.. “Hysteresis and the European Unemployment Problem.NBER Macreconomics Annual 1 (1986): 1590.10.1086/654013CrossRefGoogle Scholar
Blanchard, Olivier, Cerutti, Eugenio, and Summers, Lawrence. “Inflation and Activity - Two Explorations and Their Monetary Policy Implications.NBER Working Paper No. 21726, Cambridge, MA, November 2015.10.5089/9781513536613.001CrossRefGoogle Scholar
Bordo, Michael, and Dewald, William G.. “Bond Market Inflation Expectations in Industrial Countries: Historical Comparisons.NBER Working Paper No. 8582, Cambridge, MA, November 2001.Google Scholar
Brayton, Flint, and Tinsely, Peter. “A Guide to FRB/US: A Macroeconomic Model of the United States.Working Paper, Federal Reserve Board, Division of Research and Statistics, Macroeconomic and Quantitative Studies, Washington, DC, 1996.Google Scholar
Brooks, Robert R. R. As Steel Goes….Unionism in a Basic Industry. New Haven: Yale University Press, 1940.Google Scholar
Calvo, Guillermo A.Staggered Contracts in a Utility-Maximizing Framework.Journal of Monetary Economics 12, no. 3 (1983): 383–98.10.1016/0304-3932(83)90060-0CrossRefGoogle Scholar
Cecchetti, Stephen. “Prices during the Great Depression: Was the Deflation of 1930–1932 Really Unanticipated?American Economic Review 82, no. 1 (1992): 141–56.Google Scholar
Chauvet, Michelle, and Potter, Simon. “Forecasting Output.” In Handbook of Economic Forecasting volume 2, edited by Elliot, Graham, Granger, Clive, and Timmermann, A.. Amsterdam: Elsevier, 2013.Google Scholar
Christiano, Lawrence J.‘Comment’ on Gali, Smets and Wouters.NBER Macro-economics Annual 26 (2011): 361–80.10.1086/664014CrossRefGoogle Scholar
Christiano, Lawrence J., Martin, Eichenbaum, and Evans, Charles L.. “Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy.Journal of Political Economy 113, no. 1 (2005): 145.CrossRefGoogle Scholar
Cogley, Timothy, and Sbordone, Argia. “Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve.American Economic Review 98, no. 5 (2008): 2101–26.CrossRefGoogle Scholar
Coibion, Olivier, Gorodnichenko, Yuriy, and Wieland, Johannes. “The Optimal Inflation Rate in New Keynesian Models: Should Central Banks Raise Their Inflation Targets in Light of the Zero Lower Bound?Review of Economic Studies 79, no. 4 (2012): 1371–406.10.1093/restud/rds013CrossRefGoogle Scholar
Cooper, Russell, and Haltiwanger, John. “Automobiles and the National Industrial Recovery Act: Evidence on Industry Complementarities.Quarterly Journal of Economics 108, no. 4 (1993): 1043–71.CrossRefGoogle Scholar
Creamer, Daniel. Behavior of Wage Rates during Business Cycles. NBER Occasional Paper No. 34, New York, NY, 1950.Google Scholar
Darby, Michael R.Three-and-a-half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934–41.Journal of Political Economy 84, no. 1 (1976): 126.10.1086/260407CrossRefGoogle Scholar
Davis, Joseph H.An Annual Index of U.S. Industrial Production, 1790–1915.Quarterly Journal of Economics 119, no. 4 (2004): 1177–215.10.1162/0033553042476143CrossRefGoogle Scholar
Dighe, Ranjit. “Wage Rigidity in the Great Depression: Truth? Consequences?Research in Economic History 17 (1997): 85134.Google Scholar
Eggertsson, Gauti B.Great Expectations and the End of the Depression.American Economic Review 98, no. 4 (2008): 1476–516.10.1257/aer.98.4.1476CrossRefGoogle Scholar
Eggertsson, Gauti B.Was the New Deal Contractionary?American Economic Review 102, no. 1 (2012): 524–55.10.1257/aer.102.1.524CrossRefGoogle Scholar
Eggertsson, Gauti B., and Benjamin Pugsley. “The Mistake of 1937: A General Equilibrium Analysis.” Monetary and Economic Studies 25, no. S-1 (2006): 1–40.Google Scholar
Erceg, Christopher J., and Andrew T. Levin. “Imperfect Credibility and Inflation Persistence.” Journal of Monetary Economics 50, no. 4 (2003): 914–44.CrossRefGoogle Scholar
Fine, Sidney. The Automobile under the Blue Eagle. Ann Arbor: University of Michigan Press, 1963.Google Scholar
Fine, Sidney. Sit-Down: The General Motors Strike of 1936–1937. Ann Arbor: University of Michigan Press, 1969.10.3998/mpub.18460CrossRefGoogle Scholar
Fishback, Price. “Rule of Law in Labor Relations.Working Paper, University of Arizona, Tucson, AZ, 2018.Google Scholar
Freeman, Richard B.Spurts in Union Growth: Defining Moments and Social Processes.” In The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, edited by Michael, D. Bordo, Goldin, Claudia, and Eugene, N. White, 265–95. Chicago: University of Chicago Press, 1998.Google Scholar
Friedman, Milton. “The Role of Monetary Policy.American Economic Review 58, no. 1 (1968): 117.Google Scholar
Friedman, Milton, and Jacobson Schwartz, Anna. A Monetary History of the United States, 1867–1960. Princeton: Princeton University Press for NBER, 1963.10.1515/9781400829330CrossRefGoogle Scholar
Fuhrer, Jeff. “The Role of Expectations in Inflation Dynamics.” International Journal of Central Banking 8, Supplement (2012): 137–66.Google Scholar
Gali, Jordi. “The Return of the Wage Phillips Curve.Journal of the European Economic Association 9, no. 3 (2011): 436–61.10.1111/j.1542-4774.2011.01023.xCrossRefGoogle Scholar
Gali, Jordi, Smets, Frank, and Wouters, Rafael. “Unemployment in an Estimated New Keynesian Model.NBER Macroeconomics Annual 26 (2011): 329–60.10.1086/663994CrossRefGoogle Scholar
Gertler, Mark, and Leahy, John. “A Phillips Curve with an Ss Foundation.Journal of Political Economy 116, no. 3 (2008): 533–72.10.1086/589522CrossRefGoogle Scholar
Gordon, Robert J.Wage-Price Controls and the Shifting Phillips Curve.Brookings Papers on Economic Activity 1972, no. 2 (1972): 385421.10.2307/2534182CrossRefGoogle Scholar
Gordon, Robert J.A Century of Evidence on Wage and Price Stickiness in the United States, the United Kingdom, and Japan.” In Macroeconomics, Prices and Quantities, edited by Tobin, James, 85–121. Washington, DC: Brookings, 1983.Google Scholar
Hamilton, James. “Was the Deflation during the Great Depression Anticipated? Evidence from the Commodity Futures Market.American Economic Review 81, no. 1 (1992): 157–78.Google Scholar
Hanes, Christopher. “Changes in the Cyclical Behavior of Real Wage Rates, 1870–1990.Journal of Economic History 56, no. 4 (1996): 837–61.10.1017/S0022050700017496CrossRefGoogle Scholar
Hanes, Christopher. “Nominal Wage Rigidity and Industry Characteristics in the Downturns of 1893, 1929, and 1981.American Economic Review 90, no. 5 (2000): 1432–46.10.1257/aer.90.5.1432CrossRefGoogle Scholar
Hanes, Christopher. “Quantitative Easing in the 1930s.Journal of Money, Credit and Banking 51, no. 5 (2019a): 1169–207.CrossRefGoogle Scholar
Hanes, Christopher. “The Great Depression in the United States.Handbook of Cliometrics Volume 2, edited by Diebolt, Claude and Haupert, Michael. Berlin: Springer, 2019b.10.1007/978-3-030-00181-0_40CrossRefGoogle Scholar
Hanes, Christopher. “Hanes United States 1920s–1930s.Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2020-05-14. https://doi.org/10.3886/E119452V1.Google Scholar
Hausman, Joshua K., Rhode, Paul W., and Wieland, Johannes F.. “Recovery from the Great Depression: The Farm Channel in Spring 1933.American Economic Review 109, no. 2 (2019): 427–72.10.1257/aer.20170237CrossRefGoogle Scholar
Huang, Kevin X.D., Liu, Zheng, and Phaneuf, Louis. “Why Does the Cyclical Behavior of Real Wages Change over Time? American Economic Review 94, no. 4 (2004): 836–56.10.1257/0002828042002552CrossRefGoogle Scholar
Jalil, Andrew, and Rua, Gisela. “Inflation Expectations and Recovery in Spring 1933.” Explorations in Economic History 62, no. C (2016): 2650.10.1016/j.eeh.2016.07.001CrossRefGoogle Scholar
Kiley, Michael T.Low Inflation in the United States: A Summary of Recent Research.FEDS Notes, Federal Reserve Board of Governors, Washington, DC, 2015.Google Scholar
King, Robert G., and Mark W. Watson. “The Post-War U.S. Phillips Curve: A Revisionist Econometric History.” Carnegie-Rochester Conference Series on Public Policy 41, no. 1 (1994): 157219.10.1016/0167-2231(94)00018-2CrossRefGoogle Scholar
Kozicki, Sharon, and Tinsley, Peter A.. “Shifting Endpoints in the Term Structure of Interest Rates.Journal of Monetary Economics 47, no. 3 (2001): 613–52.CrossRefGoogle Scholar
Krugman, Paul R.It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap.Brookings Papers on Economic Activity 1998, no. 2 (1998): 137206.10.2307/2534694CrossRefGoogle Scholar
Lebergott, Stanley. Manpower in Economic Growth. New York: McGraw-Hill, 1964.Google Scholar
Lucas, Robert E.Expectations and the Neutrality of Money.Journal of Economic Theory 4, no. 2 (1972):103–24.CrossRefGoogle Scholar
Lyon, Leverett S., Homan, Paul T., Lorwin, Lewis L., George, Terborgh, Dearing, Charles L., and Marshall, Leon C.. The National Recovery Administration: An Analysis and Appraisal. Washington, DC: Brookings Institution, 1935.Google Scholar
MacDonald, Lois, Palmer, Gladys L., and Wolfson, Theresa. Labor and the NRA. New York: Affiliated Schools for Workers, 1934.Google Scholar
Mankiw, N. Gregory, and Ricardo Reis. “Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve.” Quarterly Journal of Economics 117, no. 4 (2002): 1295–328.10.1162/003355302320935034CrossRefGoogle Scholar
Marshall, Leon C. Hours and Wages Provisions in NRA Codes. Brookings Institution Pamphlet No. 16, Washington, DC: Brookings Institution, 1935.Google Scholar
Mertens, Thomas, and Williams, John C.. “Monetary Policy Frameworks and the Effective Lower Bound on Interest Rates.Staff Report 877, Federal Reserve Bank of New York, New York, NY, 2019.Google Scholar
Mishkin, Frederic S.Inflation Dynamics.International Finance 10, no. 3 (2007): 317–34.10.1111/j.1468-2362.2007.00205.xCrossRefGoogle Scholar
Mitchell, Daniel J. B.Explanations of Wage Inflexibility: Institutions and Incentives.” In Wage Rigidity and Unemployment, edited by Beckerman, Wilfred, 4376. Baltimore, MD: Johns Hopkins University Press, 1986.Google Scholar
Nelson, Daniel B.Was the Deflation of 1929–30 Anticipated? The Monetary Regime as Viewed by the Business Press.Research in Economic History 13 (1991): 165.Google Scholar
Ozanne, Robert. A Century of Labor-Management Relations at McCormick and International Harvester. Madison, WI: University of Wisconsin Press, 1967.Google Scholar
Paris, James Daniel. Monetary Policies of the United States 1932–1938. New York: Columbia University Press, 1938.Google Scholar
Pearson, Frank A.Warren as Presidential Adviser.Farm Economics no. 211 (1957): 5598–676.Google Scholar
Peterson, Florence. Strikes in the United States, 1880–1936 . United States Bureau of Labor Statistics, Washington, DC: GPO, 1938.Google Scholar
Phelps, Edmund S.Phillips Curves, Expectations of Inflation and Optimal Employment over Time.Economica 34, no. 3 (1967): 254–81.10.2307/2552025CrossRefGoogle Scholar
Phelps, Edmund S., Alchian, Armen A., Holt, Charles C., et al. Microeconomic Foundations of Employment and Inflation Theory. New York: W. W. Norton, 1970.Google Scholar
Phillips, A. W.The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957.Economica 25, no. 100 (1958): 283–99.Google Scholar
Rees, Albert. Real Wages in Manufacturing 1890–1914. Princeton: Princeton University Press for NBER, 1961.10.1515/9781400879779CrossRefGoogle Scholar
Roberts, Harold S. The Rubber Workers. New York: Harper and Brothers, 1944.Google Scholar
Roberts, John M.New Keynesian Economics and the Phillips Curve.Journal of Money, Credit and Banking 27, no. 4 (1995): 975–84.10.2307/2077783CrossRefGoogle Scholar
Rockoff, Hugh. Drastic Measures: A History of Wage and Price Controls in the United States. New York: Cambridge University Press, 1984.10.1017/CBO9780511600999CrossRefGoogle Scholar
Romasco, Albert U. The Politics of Recovery: Roosevelt’s New Deal. Oxford and New York: Oxford University Press 1983.Google Scholar
Romer, Christina D.Spurious Volatility in Historical Unemployment Data.Journal of Political Economy 94, no. 1 (1986): 137.10.1086/261361CrossRefGoogle Scholar
Romer, Christina D.The Prewar Business Cycle Reconsidered: New Estimates of Gross National Product, 1869–1908.Journal of Political Economy 97, no. 1 (1989): 137.10.1086/261592CrossRefGoogle Scholar
Romer, Christina D.Remeasuring Business Cycles.Journal of Economic History 54, no. 3 (1994): 573609.10.1017/S0022050700015047CrossRefGoogle Scholar
Romer, Christina D.Why Did Prices Rise in the 1930s?Journal of Economic History 59, no. 1 (1999): 167–99.10.1017/S0022050700022336CrossRefGoogle Scholar
Roos, Charles Frederick. NRA Economic Planning. Bloomington: Principia Press, 1937.Google Scholar
Rose, James Douglas. The United States Steel Duquesne Works, 1886–1941: The Rise of Steel Unionism. Ph.D. diss., University of California at Davis, 1997.Google Scholar
Rotemberg, Julio J.Sticky Prices in the United States.Journal of Political Economy 90, no. 6 (1982): 1187–211.10.1086/261117CrossRefGoogle Scholar
Samuelson, Paul A., and Robert M. Solow. “Analytical Aspects of Anti-Inflation Policy.” American Economic Review 50, no. 2 (1960): 177–94.Google Scholar
Schoenfeld, Margaret H.Analysis of Labor Provisions of N.R.A. Codes.Monthly Labor Review 40, no. 3 (1935): 574603.Google Scholar
Slichter, Sumner H.The Downturn of 1937.Review of Economics and Statistics 20, no. 3 (1938): 97110.CrossRefGoogle Scholar
Svensson, Lars E. O.Escaping from a Liquidity Trap: The Foolproof Way and Others.Journal of Economic Perspectives 17, no. 4 (2003): 145–66.10.1257/089533003772034934CrossRefGoogle Scholar
Svensson, Lars E. O.‘Comment’ on Bernanke, Reinhart and Sack.Brookings Papers on Economic Activity 2004, no. 2 (2004): 84100.Google Scholar
Taylor, Jason E.Work-Sharing During the Great Depression: Did the ‘President’s’ Reemployment Agreement’ Promote Reemployment?Economica 78, no. 309 (2011): 133–58.10.1111/j.1468-0335.2009.00804.xCrossRefGoogle Scholar
Taylor, Jason E. Deconstructing the Monolith: The Microeconomics of the National Industrial Recovery Act. Chicago: University of Chicago Press, 2019.10.7208/chicago/9780226603445.001.0001CrossRefGoogle Scholar
Taylor, Jason E., and Todd C. Neumann. “Recovery Spring, Faltering Fall: March to November 1933.” Explorations in Economic History 61, no. C (2016): 54–67.10.1016/j.eeh.2016.03.003CrossRefGoogle Scholar
Taylor, John B.Staggered Wage Setting in a Macro Model.American Economic Review 69, no. 2 (1979): 108–13.Google Scholar
Temin, Peter, and Wigmore, Barrie A.. “The End of One Big Deflation.Explorations in Economic History 27, no. 4 (1990): 483502.10.1016/0014-4983(90)90026-UCrossRefGoogle Scholar
Temin, Peter, and Wigmore, Barrie A.. Handbook of Labor Statistics 1941 Edition. Bulletin 694. Washington, DC: GPO, 1942.Google Scholar
U.S. Bureau of Labor Statistics. Monthly Labor Review, various issues.Google Scholar
U.S. Federal Reserve Board of Governors. Banking and Monetary Statistics. Washington, DC: Federal Reserve Board, 1943.Google Scholar
U.S. National Recovery Administration, Research and Planning Division. Report and Charts on the Operation of the National Industrial Recovery Act. Washington, DC: National Recovery Administration, 1935.Google Scholar
Wachter, Michael, Hall, Robert E., and Holt, Charles C.. “The Changing Cyclical Responsiveness of Wage Inflation.Brookings Papers on Economic Activity 1976, no. 1 (1976): 115–68.10.2307/2534048CrossRefGoogle Scholar
Warren, George F., and Pearson, Frank A.. Gold and Prices. New York: Wiley and Sons, 1933.Google Scholar
Weinstein, Michael. Recovery and Redistribution under the NIRA. Amsterdam: North-Holland, 1980.Google Scholar
Weir, David R.A Century of U.S. Unemployment, 1890–1990: Revised Estimates and Evidence for Stabilization.Research in Economic History 14 (1992): 293346.Google Scholar
Wilcox, Clair, Fraser, Herbert F., and Malin, Patrick Murphy. American’s Recovery Program. New York: Oxford University Press, 1934.Google Scholar
Williams, John C. “The Risk of Deflation.” Federal Reserve Bank of San Francisco Economic Letter, 2009-12, March 2009.Google Scholar
Wolman, Leo. Ebb and Flow in Trade Unionism. New York: National Bureau of Economic Research, 1936.Google Scholar
Yun, Tack. “Nominal Price Rigidity, Money Supply Endogeneity, and Business Cycles.Journal of Monetary Economics 37, no. 2-3 (1996): 345–70.10.1016/0304-3932(96)01246-9CrossRefGoogle Scholar