Labour Markets in the Interwar Period and strongEconomic Recoverystrong in.pdf

Labour Markets in the Interwar Period and Economic Recovery in the UK and the USA By Timothy J Hatton (University of Essex and Australian National University) And Mark Thomas (University of Virginia) 1 Introduction The sharp and deep recession that followed the Global Financial Crisis invites comparison with the Great Depression of the 1930s. Most of the focus in the literature has been on comparing the magnitude of the demand side shocks, and the strength and effectiveness of the policy response (Almunia et al., 2010). Attention is now turning to the prospects for economic recovery and to the effectiveness of policies to foster it. Here too historical evidence on the speed of recovery and the role of monetary policy has proved instructive (Bordo and Landon Lane, 2010). However, recovery will depend not just on stimulating aggregate demand but also on how well the supply side responds. As the interwar period is famous above all for high unemployment, it is natural to look at the labour market response. In this paper, we focus not only on the Great Depression of the 1930s but also on the 1920s, especially the early 1920s. The downturn of 1920-22 was short and sharp with an early recovery, while that of the 1929-31 was the prelude to a protracted period of high unemployment. If, as seems possible, the recovery from the current recession is stronger than that of the 1930s then the experience of the early 1920s may be all the more relevant. Our approach is to compare the UK and the US in the two recoveries in the hope of gaining greater insight into the economic and institutional factors that were at work. For our underlying framework we draw on a literature that stresses the role of labour marke