1
Research Report
The Labor Markets for Male and Female Salaried Employees and Production Workers
During and After Three Major Crises: World War I, The Great Depression, and World
War II
Dina Shatnawi and Price Fishback
March 2014
Please do Not Cite Without the Authors’ Permission
Dina Shatnawi is an Assistant Professor of Economics at the Naval Postgraduate University, Graduate
School of Public Policy, Monterey, California, 93943, dshatnaw@nps.edu.. Price Fishback is the Thomas
R. Brown Professor of Economics at the University of Arizona, Department of Economics, University of
Arizona, Tucson, AZ 85721 pfishback@eller.arizona.edu. The paper builds on earlier work with Ryan
Johnson and Alec Smith. We would also like to acknowledge helpful comments at the ASSA meetings in
Denver in 2011 and from Claudia Goldin, Sonam Gupta, Trevor Kollmann, Ron Oaxaca, Robert Margo,
and Gary Solon.
2
The Labor Markets for Male and Female Salaried Employees and Production
Workers During and After Three Major Crises: World War I, The Great Depression, and
World War II
Between 1915 and 1950 industrial workers in the American economy experienced three
major crises and two expansions: the First World War, the boom of the 1920s, the Great
Depression, the Second World War and the post-war boom. The structure of the work force
shifted throughout the period as the share of workers who were paid annual salaries and served in
clerical work rose relative to the share of wage workers. There were also short and long run
shifts in the gender composition of the workforce.
Most of the work studying the experiences of American workers during this period has
relied on data from the decennial censuses or samples that cover a few years of data. Yet, the
census information only can describe the shifts in work at certain benchmark years that are not
aligned with the crises and boom periods; therefore, we know relatively little about how gender
and type of work changed in the short run during the Wars and the Depression.
We fill these gaps in our knowledge using information collected in annual surveys of
industrial firms conducted by the Pennsylvania State Department of Commerce and Industry
between 1915 and 1950. They asked the same survey questions each year during the period and
sought complete coverage of the firms in the same way that the U.S. Census did for
manufacturing firms in their manufacturing surveys. Our sense is that national estimates for
employment and earnings during this time period used data from Pennsylvania (and some other
states) to interpolate between census years. This continuous data set allows us to observe longterm trends in earnings and the amount of labor and compare these trends for men and women in
both salaried and wage work. We can therefore compare gender differences across different
3
types of workers with the intention of identifying the factors within decennial census years that
may have influenced the acceptance of females in the labor market. Pennsylvania was probably
the state that most closely matched the industrial structure of the United States as a whole; thus,
the findings in Pennsylvania might reasonably be considered representative of what was
happening in U.S. industry as a whole.
We use the information in several ways to describe the changes in industrial labor
markets during the crises. In particular, we are interested in obtaining rough estimates of the size
of labor demand shifts and labor supply shifts away from long run trends during and after the
crises. We start by determining the trends in employment and earnings in each category that
arise from the period 1923 through 1929, both peak years in the business cycle. We then
compare employment and earnings to these long term trends to obtain deviations from the trends.
Using log-linear labor demand and labor supply functions and assumptions about the earnings
elasticity of labor demand and the earnings elasticity of labor supply, we develop estimates the
size of shifts in labor demand and labor supply that are implied by the changes in employment
and earnings.
Although we start with the equilibrium labor demand and labor supply model, the high
unemployment rates during the Great Depression implies that multiple factors appear to have
blocked an equilibrium where the quantity supplied and quantity demanded of labor were
equated at the existing wage rates in most markets. The current literature on the National
Recovery Administration and Hoover’s jawboning suggest that there was an implicit wage floor
for industrial wages that prevented them from declining to market clearing equilibrium wages
(Rose 2010, Ohanian 2009; Cole and Ohanian 2004; Eggerttsson 2013). If the wage limits were
4
constant and labor supply did not shift back too far, the changes in employment and total hours
would have reflected only changes along the labor demand or shifts in labor demand. We
therefore re-examine the 1930s setting with this focus on labor demand.
1
During the Second World War there were price ceilings for wage workers that left labor
shortages. Since demand was not falling during this period, it is likely that the hours and
earnings are tracing out movements along the labor supply curve or shifts in labor supply.
Therefore, we also report the size of labor supply shifts that arise from this model of the World
War II situation.
Here is a sample of results for women from the analysis. World War I stimulated both
labor demand and labor supply for female workers with an overhang of labor supply that
followed the War. The 1921-1922 recession caused a sharp drop in labor demand with little
impact on labor supply of female workers. There were minor fluctuations around the 1923-1929
trend for the rest of the decade. The Great Depression led to a disastrous drop in labor demand
for female wage and salaried workers that led to sharp drops in employment for salaried workers
and in employment and hours worked for wage workers. However, after 1932 the real annual
earnings for salaried workers grew slightly while real hourly earnings for wage workers rose
sharply. These combinations meant that either female labor supply fell sharply during the
Depression or there was an implicit wage floor on earnings during the period. Demand for
This is only a short term solution to the problem, however. A closer look at how Hoover
jawboned industrialists and the Roosevelt administration pushed for labor agreements suggests
that both sought a job sharing arrangement in which firms would cut weekly hours while
increasing the number of workers. They sought to maintain hourly wages at higher levels so
that the workers’ weekly earnings were not cut any more than the anticipated drop associated
with working 15-20 percent fewer hours per week (Neumann, Taylor, Fishback 2013; Taylor,
2011). Our long term goal is to develop a framework that takes into account all three constraints
on hourly earnings, weekly hours, and employment.
1
5
female workers rose sharply during World War II while wage ceilings held down the growth of
earnings. In the aftermath of the War, labor demand for both types of workers fell back but was
still well above the trend labor demand predicted by the noncrisis trends based on the 1923-1929
growth rates. The labor supply of female salaried workers remained elevated above trend which
kept their annual salaries down, while the labor supply of female production workers fell back
sharply and contributed to annual and hourly earnings that were well above the levels predicted
by the 1920s trend.
LITERATURE REVIEW
The rapid advancement of females in the work place has sparked empirical interest in
historical events that have influenced their economic progress. Their transition from housework
to paid work outside the home is a result of changing societal views as well as the evolution of
occupational structures. Goldin (1990, pg 16) examines, in great detail, the evolution of specific
cohorts with respect to changes in female education, marital status, occupational opportunities,
and labor market barriers such as marriage bars. According to Goldin (1990), the occupational
structure of the labor market for women changed significantly in the 1920’s. Supply side factors
such as improved household technologies changed preferences for working outside the home.
This is different from the “working woman” of the early nineteenth century, who was generally
unpaid labor on their father or husband’s farm (Costa (2000)). During the industrialization
period, the only way married women were able to successfully become economically active was
by integrating their jobs with their home life (Goldin (1990, pg 46)). By the 1920’s they were
entering clerical jobs, becoming more educated, and lengthening their stay in the labor market
6
beyond marriage. However these clerical jobs were considered dead end positions. Prior to
1950, clerical positions were not developed with the intention of retaining female employees or
providing women with promotion opportunities into management. Women were assumed to
leave the labor market upon marriage (Bergman (1986, 1989), Blau and Ferber (1991), Costa
(2000), Fuchs (1988), Goldin (1990), and MacPherson and Hirsch (1995)).
Most married
women who were either stuck in dead-end jobs or eventually forced to exit the labor market by
company marriage laws, which were more heavily enforced during the Great Depression (Costa
(2000), Goldin (1990)).
Today, female labor force participation is approximately 60 percent
compared to 20 percent in the early 1900’s. 2 Labor force participation among married women
experienced an even greater increase at 62 percent compared to only 6 percent in 1900 (Costa
2000).
To explain these long term changes, a number of scholars have focused on the 10-year
period between 1940 and 1950 (Acemoglu et. al (2004), Goldin (1991), Finegan and Margo
(1994)). Before these studies, WWII was viewed as the catalyst for improving the economic
status of women. With Rosie the Riveter as their icon, women experienced an increase in the
demand for their labor that shifted faster than the increase in their supply. The rate of female
participation in paid work outside the home, which had grown slowly since 1890, increased
significantly during the war years and subsequently grew at an accelerated rate as women,
especially married women, become more integrated in the paid work force (Goldin 1991, 2006).
However recent research shows that the increase in female labor force participation may not be
2
Source: U.S. Bureau of Labor Statistics, Bulletin 2307; and Employment and Earnings, monthly, January 2008
issue.
(http://www.census.gov/compendia/statab/cats/labor_force_employment_earnings/labor_force_status.html)
7
necessarily attributed to the war and that the economic progress of women may have been
delayed by other factors throughout history.
Finegan and Margo (1994) link the increased labor force participation among women
during WWII to their reduced labor force participation induced by the Works Progress
Administration during the Great Depression. The objective of their study is to explore the effects
of the New Deal work relief program, “Public Emergency Work” (PEA), on the labor supply of
married women during the Great Depression. A logistic regression model is estimated in order
to analyze how local market characteristics, and their husband’s association with the relief
program influenced female labor market participation. Using census data from 1940, they find
that in addition to reduced product demand, the work relief program reduced the number of
women joining the labor force. They hypothesize that some of the women who entered during
WWII would have entered prior to the war in the program’s absence. That is, the increase in
female labor market participation during WWII may have been a result of females abstaining
from the market during the depression in order to keep their husbands eligible for the work relief
program.
Goldin (1991) looks specifically at the WWII period and uses two individual level
retrospective surveys (Palmer Survey) from 1944 and 1951 in conjunction with census data to
infer whether WWII encouraged the rise of female employment. She asks: How many women
entered during the war? How many were drawn in after the war? And how did these groups
differ from each other? Goldin (1991) constructs a tree diagram to compute the probabilities of
whether women who entered during WWII remained in the labor market in 1951, along with a
simple regression model to investigate whether wartime employment enhanced women’s
marketable skills. She finds that even though the war was associated with a large increase in the
8
number of women employed, the war-time rise was smaller than the rate of increase of female
employment from 1944 to 1950. Goldin (1991) suggests that long run factors such as the rise of
the clerical sector along with increased education may have influenced the changing economic
role of women more than the war. Goldin’s study of married women shows that about half of the
wartime entrants left the labor force after WWII.
In more recent work, Acemoglu et al. (2004) uses military mobilization as an instrument
to study the effect of the war on female labor supply. The idea is that military mobilization rates
are independent of women’s past choices to enter the labor market, but the mobilization itself led
to an increase in their labor supply. They use Integrated Public Use Microdata Series (IPUMS)
of the decennial censuses for 1940 and 1950. Assuming a constant elasticity of substitution
(CES) production function, Acemoglu et al. (2004) find that women in states with greater
mobilization of men during WWII worked more immediately after the war and in 1950, but not
in 1940, compared to women in states with less mobilization.3 Their findings indicate that
female and male labor inputs are imperfect substitutes. However, men and women were closer
substitutes at the middle of the skill distribution.
We extend this literature by analyzing annual variation of the demand for female
employment between 1916-1950 using industry level data. We believe that that there are several
advantages to using our data set for studying the impact of historical events on labor demand for
females. First, little labor force data exists for the years between the census dates, thus we can
better capture the timing, extent, and duration of changes in firm’s demand. Second,
Pennsylvania is a good case study to use because the state was one of the most populous states in
3
Since data does not exist for intra-census years, Acemoglu et al (2004) use the Current Population Survey (CPS)
Social Security Earnings Records Exact Match file for adults interviewed for the CPS in March of 1978. This
employment data is only available starting in 1947.
9
the country during the relevant time period. In 1940, the population of Pennsylvania was
9,900,180, accounting for 0.7 percent of the U. S. population of 132,164,569
(http://www.census.gov/population/cencounts/pa190090.txt). Pennsylvania is also the most
industrially diverse states in the country with a broader range of industries than any other state.
Finally, we are able observe gender differences among different worker classifications. This
allows us to better identify differential effects caused by particular events in history.
DATA
The gender-specific industry level employment data set was obtained from the “Report
on Productive Industries, Public Utilities and Miscellaneous statistics of the commonwealth of
Pennsylvania” and the “Annual Report of the Secretary of Internal Affairs of the Commonwealth
of Pennsylvania: Industrial Statistics.” The data was collected annually and spans the years 1916
to 1950 for over 300 industries in Pennsylvania. For convenience in interpreting the data, the
300 firms were aggregated to 13 major industries.4 The following description of the data is from
a revised version of Ryan Johnson’s Ph.D thesis (2004) and further details can be found in his
data appendix:
“These reports were compiled from annual reports from manufacturing and
mining industries by the Department of Internal Affairs. The Department of
Internal Affairs had a team of field workers who conducted surveys and also kept
in close contact with chambers of commerce to ensure that the department
collected data on all relevant firms (Pennsylvania Department of Internal Affairs
1941, p. xvi). There were about 315 industry classifications each year. The
industrial classifications are so fine that some firms produced products that should
be classified in multiple industries. In cases like this the data were coded by the
Pennsylvania Department of Internal Affairs according to the classification of the
product that represented the firm’s largest value of manufacture (see the forward
4
The major industries are: building and construction (only available for some years), chemicals and allied, clay,
glass, and stone, food and beverages, rubber and leather, wood products, metal products, mining and quarries, paper
and printing, textiles, tobacco products, miscellaneous, and public services.
10
of the 1926 report). In some years there was construction industry data reported
also.”
The goal of the Pennsylvania Department of Internal Affairs was to collect data on all firms
within the industries surveyed. The data covers approximately 1.5 million workers per year in
manufacturing and mining industries. This is a relatively large sample considering that the state
of Pennsylvania had a population of between 8 and 11 million people for the period studied.
The variables of interest for this study are the four categories of workers: male wage
earners female wage earners, male salaried workers, and female salaried workers. We have
information on the number of workers and the total annual payments spent on each of the four
labor inputs. The analysis also incorporates information on the value of the product, capital
invested, and whether or not the industry was producing under a major WWII contract worth
$50,000 or more.
To get an estimate of hourly earnings for the industries in our Pennsylvania data set, we
have obtained national average hourly earnings for male and female wage workers for most of
the broad industry classifications between 1920 and 1950.5 This information was collected from
the “National Industrial Conference Board” management records (NICB) for the years between
1939 and 1950.6 We obtain the same information for the years 1920-1939 from Beney (1938),
which she also collects from NICB management records.
5
This data is reported monthly,
The industries listed in the NICB records are: agriculture implement, automobile, boot and shoe, chemical, cotton,
electrical manufacturing, furniture, hosiery and knit goods, iron and steel, leather, lumber, meat packing, paint and
varnish, paper and pulp, paper products, printing books, printing news and magazines, rubber, silk and rayon, wool,
foundries and machines. I believe some of these industries include aircraft and ship building. In order to match
these industry classifications to those listed in the Pennsylvania data, we further aggregate the industries to only 7:
chemicals and allied, food and beverage, metal products, paper and printing, runner and leather, textiles, and wood
products.
6
The hourly earnings are not wage rates because they may include overtime and other monetary compensation.
11
however we convert the data into annual averages so that we can match and merge the national
wages to the annual Pennsylvania data.
The hourly earnings and total hours estimates have
more measurement error than the annual earnings and employment figures because the NICB
sample included a substantially larger geographic area than Pennsylvania. The estimates are still
useful because it is likely that Pennsylvania hourly earnings followed the same trend path as
national hourly earnings.
We then indexed each of the variables aggregated to the state level for the four types of
workers so that 1920 was equal to one. In this research report we report the results using the
indexes for the state totals of workers, salary payments, and wage payments for Pennsylvania
after adjusting for coverage of industries. We have also performed this process in another way.
The reports also reported information for as many as 300 industries. We developed a balanced
panel for industries with information in all years. For each category (average annual salaries,
employment of salaried workers, average hourly earnings, and total hours for wage workers) we
then estimated a regression with industry fixed effects and year fixed effects. The year fixed
effects were then used to develop an index with 1920 equal to one for each category. The
results were generally similar to what we report here (Shatnawi 2010). Any suggestions for
which method would be superior would be greatly appreciated.
COUNTERFACTUAL TREND
We develop a counterfactual trend based on the average annual growth in earnings and
amount of labor for the period 1923-1929. We regressed the growth rate on time without an
intercept for that 7 year period in each case. We chose that period for several reasons. It was the
only extended noncrisis period for which data are available on a consistent basis prior to 1950.
12
The years 1923 to 1929 were both business cycle peaks and there were minor fluctuations in the
economy during that period. These were boom years for the economy with substantial growth in
new technologies like automobiles, radios, and electricity, a rise in leisure activity, expansions in
internal labor markets, increases in the access to high school and more advanced education, and
changed political roles for women after they obtained the right to vote. For both female and
male salaried workers the predicted trend values were very close to the actual values in 1917 and
were within 2 percent of the values in 1940 for either earnings or labor activity. Female hourly
earnings and hours were on trend in 1920, 1923-1931 and male hourly earnings and total hours
were on trend in 1920 and 1923-1929. Total hours were close to trend in 1941 while earnings
were well above trend.
We did not want to choose a trend line from the recovery from 1933 because that was
from a trough in the Great Depression, and the trough was so deep and thus the growth rates so
rapid in the first few years that all the values for workers would have been well below trend by
the late 1940s and into the 1950s.
Picking a counterfactual trend is a difficult activity; therefore, we seek to be careful in
our conclusions. If the earnings and employment differ significantly from the trend in the late
1940s, we are describing the situation in terms of shifts in labor supply and labor demand in
those categories as the source of the change. it could be that the differences are driven by a new
trend that developed during the Depression or World War II. Such a trend is likely the result of
changes in the long run relationships between labor demand and/or labor supply and the factors
that shift them. It might also be that the earnings elasticities of labor demand and labor supply
13
have changed. Thus, what we call supply and demand shifts relative to trend may encompass
changing elasticities or changing trends.
Our goal in developing this analysis is not to focus on getting a precise estimate of labor
demand and labor supply shifts. Instead, we seek to get a rough idea of how labor demand and
labor supply likely changed in response to the crises and their aftermath with a future goal of
digging more deeply into the factors that led to these changes.
ESTIMATING THE SIZE OF DEVIATIONS IN SUPPLY AND DEMAND RELATIVE
TO TREND
As a starting point we can make simple predictions about the shifts in labor demand and
supply relative to trend by assuming a downward sloping demand and upward sloping supply for
industry and then comparing earnings and employment in each year to trend earnings and
employment. As an example if we see that earnings and employment are both above their trend
levels in a year, the finding implies that the dominant reason why they deviate from the trend is
that labor demand is above the trend. If earnings are above trend and employment is roughly at
the trend, we can say that demand has increased above trend but this was offset by a reduction in
labor supply relative to trend. Table 1 summarizes the positions of supply and demand relative
to trend implied by the positions of earnings and employment relative to trend.
The analysis can be more specific about the size of the differences between the current
and long term trend in labor demand and labor supply, if one is willing to make assumptions
about the short run elasticities of employment (E) with respect to wages (w) for the labor demand
and labor supply curves. Consider the following log-linear labor demand and supply equations
14
1a and 1b respectively. The equations are written to match the traditional way used to graph
labor demand and supply with earnings on the vertical axis and employment on the horizontal
axis.
Ln(w) = a0 - a1 ln(E) + a2 ln(D),
1a)
Ln(w) = b0 + b1 ln(E) - b2 ln(S),
1b)
Where w is the wage, E is employment, D is a factor that shifts labor demand and S is a factor
that shifts labor supply. All parameters--a0, a1, a2, b0, b1, and b2—are positive. The negative
sign in front of a1 implies a downward sloping short run demand for labor and the positive sign
in front of b1 implies an upward sloping supply of labor. If the demand shift factor D increases,
the positive sign before a2 suggests that labor demand increases and raises earnings for every
level of employment. The negative sign in front of b2 suggests that an increase in the supply
shift factor S increases supply and lowers earnings for every level of employment. .
One thing to note is that –a1 is the labor demand elasticity of the wage with respect to changes in
employment, which is the inverse of the traditional demand wage elasticity defined as the
elasticity of employment with respect to the wage. The coefficient b1 is therefore the inverse of
the labor supply elasticity of employment with respect to the wage.
If we assume an equilibrium model in which the wage adjusts to equate the ln(E) ‘s from
the labor demand and supply functions, we can solve for ln(w) and ln(E) to obtain reduced form
functions in which the two are functions of both the natural logs of both the labor demand shifter
(D) and the labor supply shifter (S).
Ln(w) = (a1 b0 – a0 b1)/(a1 + b1) - a1 b2/(a1 + b1) ln(S) +a2 b1/(a1 +b1) ln(D)
2a)
15
ln(E) = (a0 - b0)/ (a1 + b1)
+ b2/(a1 + b1) ln(S) + a2/(a1 + b1) ln( D)
2b)
Similarly, the trend values can be written
Ln(w*) = (a1 b0 – a0 b1)/ (a1 + b1) - a1 b2/(a1 + b1) ln(S*) +a2 b1/(a1 +b1) ln(D*)
3a)
ln(E*) = (a0 - b0)/ (a1 + b1)
3b)
+ b2/(a1 + b1) ln(S*) + a2/(a1 + b1) ln(D*)
where the asterisks refer to values of factors along the long-term trend path.
After subtracting the long-term trend equations from the current year equations and multiplying
both sides by (a1+b1), the equations become
(a1+b1) ( ln(W)-ln(W*))= a2 b1 [ln( D)-ln(D*)] - a1 b2 [ln(S)-ln(S*)]
4a)
(a1+b1) ( ln(E)-ln(E*)) = b2 [ln(S)-ln(S*)] + a2 [ln( D)-ln(D*)]
4b)
The amount that a factor shifts supply (SS) relative to the trend is the product of the change in
the shifter and b2, its impact on the supply curve, such that
SS = b2 [ln(S)-ln(S*)].
5a)
Similarly, the amount that a factor shifts demand (DD) is the product of the change in the shifter
and its impact on the demand curve (a2), such that
DD= a2 [ln( D)-ln(D*)].
5b)
After substituting DD and SS from equations 5a and 5b into equations 4a and 4b, and
rearranging terms, the equations become.
(a1+b1) (ln(W)-ln(W*))= -a1 SS +a2 DD
6a)
16
(a1+b1) (ln(E)-ln(E*)) = SS + DD
6b)
Now solve equations 6a and 6b for SS and DD to get equations
DD = (ln(W)-ln(W*)) + a1 (ln(E)-ln(E*))
7a)
SS = b1 (ln(E)-ln(E*)) - (ln(W)-ln(W*))
7b)
We are assuming that the labor demand and supply elasticities of employment in response to
wages do not change with changes in employment.
Richard Freeman (1981) estimated labor demand and labor supply elasticities for
manufacturing as a whole for the period 1950 to 1976. Filer, Hamermesh, and Rees (1996, 233)
calculated that Freeman’s estimates suggested a labor elasticity of 5.5 for the labor supply
elasticity of hours worked with respect to the hourly wage is 5.5 and a labor demand elasticity of
-0.55. Since a1 is the absolute value of the inverse elasticity of labor demand and a2 is the
absolute value of the inverse elasticity of labor supply, a1=1/0.55 = 1.82 and b1 is equal to 1/5.5
= 0.18.
There is a limited amount of research on the correct elasticities. Freeman estimated a
more complex model with lags than what we are using here and focused on production workers.
Here we are looking at both production and salaried workers as well as males and females. The
implications of differing elasticities can be seen in Figures 1 and 2, which describe the difference
from trend for labor demand and supply associated with the difference in between the actual and
the trend log values of salary and employment for female salaried workers between 1916 and
1950. Using Freeman’s estimate when the inverse demand elasticity (a1) is 1.82 (diamonds),
the demand deviations from trend are similar to deviations using an assumption of 1 for a1
17
(squares) in Figure 1. As the deviations from trend for employment and salaries increase,
however, the 1.82 inverse elasticity ( a1) leads to increasingly larger demand deviations from
trend than does the inverse elasticity of 1. For production workers and hourly earnings the
assumption that a1 is 1.82 leads to extremely large demand drops relative to trend of more than
100 percent; therefore we chose a demand elasticity of -0.8, which leads to a value of a1 1/0.8 =
1.25.
On the supply side in Figure 2, the inverse elasticity of 0.18 based on Freeman
(diamonds) leads to similar estimates of supply deviations from trends as an inverse elasticity
(b1) of 1 (squares) for small deviations in employment and salaries. For larger deviations of
employment and salaries from trend, the supply inverse elasticity of 1 (squares) leads to much
larger deviations of supply from trend than the inverse elasticity of 0.18 (diamonds). Our sense
is that supply shifts were likely to be smaller in size, and thus we chose to use Freeman’s supply
elasticity of 5.5 and thus a b1=1/1.55=0.18. Note that this therefore may lead to lower bound
estimates of the changes in supply.
Measuring Demand Shifts in a Depression Labor Market with High Unemployment and an
Implicit Wage Floor
It is reasonable to be skeptical of the use of an equilibrium supply and demand model
during the Great Depression because unemployment rates were so far above any levels seen
before or since in the U.S. A significant number of papers argue that one reason for the high
unemployment in industry was that industrial wages were rigid downward. President Herbert
Hoover “jawboned” industrial leaders to maintain wages and the Roosevelt administration
followed a similar policy with the Presidents’ Re-Employment Agreements (PRA) in August
18
1933, the National Recovery Administration (NRA) “fair codes of competition” and policies to
support collective bargaining. They argue that the appropriate model is a labor market with an
“implicit” wage floor.
When there is a wage floor and a labor surplus is maintained during the period, the
information on earnings and employment relative to trend cannot be used to describe changes in
labor supply relative to trend. The information on earnings and employment can only describe
changes in labor demand. If the wage floor changes, we need to sort out changes in employment
caused by shifts in labor demand and movements along the demand curve.
The mathematical estimates of the demand relative to trend under this setting can be
found by starting with our original labor demand and labor supply equations 1a) and 1b). If
there remains a surplus relative to trend throughout the period as a result of the implicit wage
floor (Wmin) , the log of employment will be determined by the demand curve.
Ln(Wmin) = a0 - a1 ln(E) + a2 ln(D),
8)
If the wage holds steady at that wage floor, rearrange terms and
a1 ln(E)= - Ln(Wmin) + a0 + a2 ln(D),
9)
a1 ln(E)= a0 + a2 ln(D) - Ln(Wmin),
10)
ln(E)= a0/a1 + a2/a1 ln(D) – 1/a1 Ln(Wmin),
11)
Along the long run 1920s trend, the following demand expression derived from 1a would still
hold.
ln(E*)= a0/a1 + a2/a1 ln(D*) – 1/a1 Ln(W*)
12)
19
To get the difference from the long run trend demand expression, subtract equation 12 from
equation 11.
ln(E) –ln(E*) = a2/a1 [ln(D)-ln(D*)] – 1/a1 [Ln(Wmin) – ln(W*)]
13)
Substitute DD for a2 [ln(D)-ln(D*)] to get.
ln(E) –ln(E*) = 1/a1 DD – 1/a1 [Ln(Wmin) – ln(W*)
14)
Rearrange terms and multiply through by a1
DD = a1[ ln(E) –ln(E*)] – [Ln(Wmin) – ln(W*)]
15)
If the implicit wage floor Wmin differs from the trend Wage, then the labor demand deviation
from the trend labor demand is adjusted downward by the difference in the logs of the wage floor
and movements along the demand curve.
If the implicit wage floor is set at the long run level Wmin=W*, then
DD= a1 [ln(E) –ln(E*)].
16)
We can see these changes graphically in Figure 3, which plots labor demand and supply
using ln(hourly earnings) and ln(total hours), thus the slopes for labor demand and supply are the
inverse of the elasticities of hours with respect to hourly earnings. For simplicity in the
discussion assume the trend labor demand and supply were fixed throughout the 1930s and they
intersect at an equilibrium with a ln(hourly earnings) of 1.8 and ln(total hours) of 17. For
Figures 3 and 4 we assumed a demand elasticity of hours with respect to earnings of -0.8 and a
supply elasticity of hours with respect to earnings of 3; therefore, a1 = 1.25 and b1= 1/3.
20
Labor Demand in 1933 in Figure 3 falls sharply relative to trend to D33. Had there been
no implicit wage floor and no deviation from trend labor supply, the equilibrium would have
moved down the trend labor supply curve from point A to point B and ln(hourly earnings) would
have fallen from 1.8 to around 1.7 and ln(total hours) would have fallen to around 16.77. With
an implicit wage floor set at the trend ln(hourly earnings) of 1.8, the move is from point A to
point C and ln(total hours) fall instead to 16.7. In this case the size of the demand shift in the
equations ( DD=a2 (ln(D)-ln(D*) = a1 [ln(E) –ln(E*)]) would be the change in total hours of -0.3
= (16.7 -17) multiplied by the absolute value of the inverse demand elasticity a1 =1.25 for a
value of -0.375. .
Between 1933 and 1935 the recovery was likely to have led to a shift in demand from
D33 back to D35. Had the implicit wage floor remained at 1.8, the situation would have moved
from point C to point E and ln(total hours) would have increased by 0.1 from 16.7 to 16.8.
Compared to the trend ln(total hours), the shift to D35 would have left ln(total hours) below
trend by -0.2 = (16.8-17). Given that the ln(hourly earnings remained fixed at 1.8, our estimate
of the demand shortfall relative to trend would be the shortfall in ln(total hours) multiplied by
a1=1.25, which is equal to -0.2*1.25= -0.25.
There is no guarantee that the implicit wage floor remained constant over the course of
the 1930s. The Roosevelt administration through the PRAs, the NRA, and expansions in
collective bargaining was pressuring businesses to increase wages. Meanwhile, they providing
more generous relief benefits and work relief options than had been earlier provided by the state
and local governments. Some or all of these changes could have increased the implicit wage
floor. To show this in Figure 3, assume that the implicit wage floor changed to 1.9 in 1935,
while the demand curve shifted to D35. The new location would be point D in Figure 3. In this
21
case measuring the change in demand associated with the differences between the actual
ln(hourly earnings) and ln(total hours) and their trend values is more complicated. It combines
both a demand shift and a move upward along the D35 demand curve associated with the higher
implicit floor. In 1935 with the simultaneous demand shift and the higher wage floor, ln(total
hours) end up at 16.72 at point D on Figure 3. The shortfall is then -0.28= 16.72-17. Part of that
shortfall was due to the reduction in ln(total hours) of -0.08 = 16.72-16.8 associated with the 0.1
rise in the floor for ln(hourly earnings) from 1.8 to 1.9 (a move from E to D). The rise of 0.1
leads to a reduction of -0.08 because the demand elasticity of hours with respect to earnings is 0.8. The remaining shortfall of -0.2 is due to the shortfall of demand at the old wage floor of 1.8
and the new Demand D35 at point E, and the demand shortfall relative to trend (DD) is valued at
-0.25 = 0.2 * 1.25.
Measuring Labor Supply Shifts Given the Wage and Salary Ceilings During World War II
The situation was reversed during World War II. Labor Demand had increased rapidly as
military production ramped up. The labor supply of men was cut sharply by the draft and men
volunteering for military service. We suspect that the labor supply of women expanded because
it is likely that their earnings did not rise enough to cause an increase in the quantity of labor
supplied that matched the total hours supplied. In a bid to control costs and rising prices, the
federal government set price, wage, and salary controls. In this setting as long as there was a
shortage of labor at the ceiling, we can only use the ln(hourly earnings) and ln(total hours) to
show changes in labor supply relative to the long run trend, but we cannot measure the change in
labor demand directly.
22
An effective wage ceiling set the wage below the market clearing wage. In that case the
demand curve becomes moot unless supply rises enough or (or demand declines enough) to
allow the market clearing wage to be at or below the wage ceiling. After substituting the
maximum wage (Wmax) into the labor supply curve equation 1b,.
Ln(Wmax) = b0 + b1 ln(E) - b2 ln(S),
17)
To obtain ln(E), rearrange terms and divide through by b1 to get
ln(E) = 1/b1 Ln(Wmax) - b0/b1 + b2/b1 ln(S).
18)
Along the long run 1920s trend, the labor supply curve derived from 1b leads to
ln(E*) = 1/b1 Ln(w*) - b0/b1 + b2/b1 ln(S*) .
19)
If the wage ceiling leads to a shortage for the long run trend, then the difference between the
actual labor supply and the trend labor supply is obtained by subtracting equation 19 from
equation 18.
ln(E) –ln(E*) = 1/b1 [ln(Wmax) – ln(w*)] + b2/b1 [ln(S)-ln(S*)]
20)
Substitute SS from equation 7b for b2 [ln(S)-ln(S*)]
ln(E) –ln(E*) = 1/b1 [ln(Wmax) – ln(w*)] + 1/b1 SS
21)
Rearrange terms to solve for SS
1/b1 SS = -1/b1 [ln(/Wmax) – ln(w*)] + [ln(E) –ln(E*)]
Multiply through by b1
22)
23
SS = b1 [ln(E) –ln(E*)] - [ln(Wmax) – ln(w*)]
23)
The equation above shows how to calculate the supply shift relative to trend from the ln(wage)
and employment) information. If the wage ceiling differs from the trend wage, then the labor
demand deviation from the trend labor demand is adjusted downward by the difference in the
logs of the wage floor and movements along the demand curve.
If the wage is set at the long run trend wage level, then Wmax=w*
SS = b1 [ln(E) –ln(E*)]
24)
Figure 4 shows labor supply and labor demand for women with ln(hourly earnings) and
ln(total hours). As in Figure 3, we assume a labor supply elasticity of hours with respect to
hourly earnings of 3 and a labor demand elasticity of -0.8. For ease of discussion assume the
trend labor supply and demand are fixed over the course of the war. The trend equilibrium
intersection between DTrend and STrend implies ln(hourly earnings) of 1.8 and ln(total hours) of
17 at point A. For women we assume that both labor demand D43 and labor supply S43 in 1943
were higher than the trend, leading to equilibrium ln(hourly earnings) of 1.85 and ln(total hours)
of 17.36 with no wage ceiling at point B.
If the wage ceiling were set at the trend ln(hourly earnings) of 1.8 given the rise in
demand to D43 in Figure 3, the changes would have been to point C with an increase in ln(total
hours) from 17 to 17.2. From this information we can trace out the size of SS in equation 24 by
multiplying the inverse supply elasticity b1 by the change in ln(total hours). Given our
assumptions that b1 is 1/3, the labor supply shift SS would have been measured as 1/3*0.2 =
0.067. We know that demand shifted by at least this much but cannot say more.
24
The War Labor Board, moreso for women than for men, allowed the wage and salary
controls to rise somewhat over the course of the War. This complicates the estimation of the size
of the Supply shift associated with the rise in ln(total hours) because the rise in the wage control
would add a movement along the new supply curve to the shift in supply relative to trend. In
Figure 3 a simultaneous rise in supply to S43 from Trend Supply and a rise in the ceiling on
ln(hourly earnings) from 1.8 to 1.833 would have increased ln(total hours) from 17.0 to 17.3 at
point D, which is 0.3 more than the trend. Part of this rise can be attributed to the movement in
ln(total hours) associated with the movement up the S43 supply curve from 17.2 at point C to
17.3 at point D that came from the rise in wage ceiling. Given the labor supply elasticity of 3, a
rise in earnings of 0.033 from 1.8 to 1.833, would have moved the quantity supplied of labor up
by 0.1. The rest of the change in ln(total hours) was the movement from 17 to 17.2, which is
multiplied by the inverse labor supply parameter of b1=1/3 to get the labor supply shift of 0.067.
FEMALE SALARIED WORKERS
Using the models of labor supply and demand, we can provide a more nuanced
description of the changes in the labor market situation for female salaried workers, who were
typically clerks and administrative assistants and administrators. The 1923-1929 trend lines in
Figure 5 show average annual increases in employment of 2.2 percent per year and increases in
real salaries of 1.8 percent per year. In 1916 just prior to the U.S. entry into World War I, the
average salary was close to the 1923-1929 trend while employment was nearly 24 percent below
trend in Figure 5. This leads to estimates that labor supply was -7 percent below trend and labor
demand was -27 percent below trend in Figure 6.
25
When the U.S. entered World War I in 1917, both mean salary and employment in Figure
5 were close to the trend, implying that labor demand and supply had returned close to the trend
in Figure 6. The War led to a series of complex changes in the labor market as roughly 7
percent of the male labor force entered the military and women joined the labor force to replace
lost earnings and meet war time demands, particularly a great deal of administrative work in
dealing with the military and the federal government’s rules during the war. Labor demand and
labor supply both rose to the trend level, as did salaries and employment. When the war ended in
1918 and over the next two years, female salaries fell to -9.4 to -15.8 percent below trend even as
employment expanded by 16 to 21 percent above trend in Figure 5. These changes imply that
the demand for female salaried workers in Figure 6 rose as high as 15 percent above trend in
1918 before falling back to 11 and 5 percent above in 1919 and 1920. At the same time the
supply of female salaried workers rose to 12 to 19 percent above trend. One reason for this rise
in supply was that the high school movement was underway and the pool of high school
educated women was expanding.
The recession of 1921-1922 was associated with salaries in Figure 5 that were -3 percent
below trend and employment that was -5 to -9 percent below trend, consistent with a demand
that was -14 and -10 percent below trend and a supply that remained close to the trend line. For
the rest of the decade through 1930, salaries, employment, demand, and supply bounced around
the 1923-1929 trend line with deviations of no more than 2 percent in any direction.
The Depression
As the national economy sunk into Depression female salaried employment in Figure 5
dropped to -12.8 percent below trend in 1931 and to a bottom of -35.8 percent below trend and
26
then remained at least -19 percent below trend through 1940. Meanwhile, salaries were about
1.7 percent above trend in 1931 and then slowly sank to -7.3 percent below trend through 1940.
No matter which model is used, there is a clear implication that labor demand fell well
short of the trend labor demand during the decade. If we believe the equilibrium model is
appropriate, we can say something about labor supply. Figure 6 shows that labor supply
remained close to trend female labor supply throughout the decade within a range of -4 to -5
percent below trend in the early 1930s to 3 to 3.8 percent above in the late 1930s. The
equilibrium model provides the largest estimate of the shortfall in labor demand, ranging from 38 to -49 percent below trend from 1932 to 1936 and remaining more than -31 percent below
trend through 1940 in Figure 6.
Given the high levels of unemployment in the 1930s, the equilibrium model seems
inappropriate. Many scholars argue that there was an implicit floor on salaries and wages in the
industrial sector. As long as labor is in surplus, we can only use employment and salaries to
trace out changes in demand if the wage floor was fixed at the trend or a combination of shifts in
demand and movements along the demand curve if the wage floor differed from the trend. Using
a wage floor model in which the wage floor follows the trend path of real salaries, the labor
demand shortfall is somewhat smaller than under the equilibrium model. Between 1932 and 1940
27
the demand shortfall from trend in Figure 6 (triangle and dotted line) ranged from -24 to -44
percent, compared with -38 to -49 percent for the equilibrium model.7
World War II and Its Aftermath
As the military buildup began in 1940 and 1941 salaries in Figure 5 remained -7 to -8
percent below trend while employment rose from -19 percent below trend to only -2.7 percent
below trend. This implies a rise in demand in Figure 6 from -32 percent to -12 percent below
trend and an increase in labor supply from 3.8 to 7.8 percent above trend.
During the war,
employment rose sharply to 21 percent above trend in 1942 and then to 52 and 49 percent above
trend in 1944 and 1945. Salaries did not follow as they fell to -13.3 percent below trend in 1942
and slowly rose to -3.8 percent below trend in 1945. If we use the equilibrium supply and
demand model, these changes in employment and salaries imply a rise in demand in Figure 6
from -12 percent below trend in 1942 to 58 and 59 percent above trend in 1944 and 1945, while
labor supply rose to 17.2 percent above trend in 1942 before declining to 12.7 percent above
trend in 1945.
The equilibrium model is problematic for this period, however, because wage and salary
ceilings were established in September 1942 and lasted through 1946.
An effective ceiling on
salaries means that we can only use salaries and employment to trace out changes in labor supply
relative to trend if the salary ceiling matched the salary trend, or changes in both labor supply
7
We could use an alternative assumption that the salary floor moved along the path followed by
the actual salaries. In that case the demand shortfall was smaller and ranged from -17 to -41
percent below trend during the decade.
28
and movements along the labor supply curve relative to the trend if the salary ceiling was set at
the actual levels. Assuming that the salary ceiling was set at the trend salaries, the shifts in labor
supply relative to trend in Figure 6 (circle and dotted line) were not as large, ranging from 3.8
percent above trend to a high of 9.5 percent above in 1944 and then dropping to 6.9 percent
above trend in 1946.
For the period after the wage ceilings were eliminated beginning in 1947, we can use the
equilibrium model more effectively to look at labor supply and labor demand. Following the
War salaries in Figure 5 rose from -8 percent below trend in 1946 to -5 percent below trend in
1950, while employment fell from 34.7 percent above trend in 1947 to 25.1 percent above trend
in 1950. These changes imply that the demand for female salaried labor in Figure 6 fell from
more than 34 percent above trend in 1947 and 1948 to 26 percent above trend in 1950 and the
labor supply fell from 14 percent above trend in 1947 and 1948 to 9.5 percent above trend in
1950. Thus, both labor demand and labor supply were still well above trend five years after the
war with employment much higher than the trend would predict. The combined effects of labor
supply and demand relative to trend was to keep wages down.
MALE SALARIED WORKERS
For male salaried workers the noncrisis trends from 1923 through 1929 shown in Figure 7
were associated with an average annual rise in employment of 1.4 percent per year while salaries
in real terms rose at 2.7 percent per year. In 1916 both the actual salaries and employment
levels in Figure 7 were more than 17 percent above the backcasted trends, implying a demand 41
29
percent above trend and a supply 16 percent below trend in Figure 8. While the U.S. was
fighting in the First World War in 1917 and 1918, salaries dropped back to 2.6 percent below
trend while employment remained 25 percent above trend. The changes imply that male salaried
labor supply in Figure 8 returned within 2.5 percent of the trend while labor demand remained
more than 33 percent above the trend line.
In the immediate aftermath of the war salaries fell to -5 percent below trend in 1919 and 12 percent below trend in 1920, as employment fell back to 5 and 11 percent above trend. The
adjustments imply a labor demand drop to within 2 percent of trend and a labor supply increase
to 6.3 and 14.3 percent above trend.
The combination of the labor supply shortfall relative to
trend prior to the War and the labor supply rise above trend after the War provide conflicting
evidence about the impact of the War on labor supply. The first implies that male labor supply
for salaried work actually rose when the U.S. entered the War, but the aftermath suggests that
labor supply might have been suppressed during the War. It is possible that the trends in the
salaried labor market shifted course as a result of the War.
During the Recession that followed salaries were -5 percent and employment -10.6
percent below trend in 1921 consistent with an -13 percent shortfall in demand and a supply
about 3 percent above trend. From 1922 through 1930 salaries remained within -4.4 and 3.8
percent of the trend and employment remained within -4.4 and 0.7 percent of the trend.
Consequently, labor demand and supply bounced around within a band of 4.5 percent of the
trend. The fluctuations around the trend were about twice as large as for female salaried
workers.
The Great Depression
30
As the economy continued to sink into the Depression, salaries in Figure 7 remained on
the trend in 1931 while employment fell -7.7 percent below trend, implying a downward demand
shift by -4.8 percent below trend. For the rest of the decade earnings were -10 to -17 percent
below trend and employment ranged from -10.6 (in 1937) to -28.7 (in 1933) percent below trend.
Using the equilibrium model, these changes imply that labor demand in Figure 8 ranged between
-37 to -47 percent below trend from 1932 through 1936 and -29 to -37 percent below trend from
1937 through 1940. Meanwhile labor supply rose from 3.3 percent above trend in 1932 to 14
percent above in 1938 before falling back to 11 percent above trend in 1940.
In a model where Hoover’s jawboning and the New Deal labor policies imposed an
implicit salary floor that followed the trend salary, we can trace out only changes in labor
demand, which showed a shortfall relative to trend in Figure 8 (triangle dotted line) of -31 to -36
percent in 1932 through 1936 and a smaller shortfall of -13 to -20 percent from 1937 through
1940.8
World War II and Aftermath
During the U.S. military buildup and entry into World War II in 1941 and 1942 real
salaries in Figure 7 remained low at -8.9 to -10.2 percent below trend while employment
returned to within 2.1 percent of trend. This implies that demand improved relative to the
demand levels of the Great Depression but still remained – 8 to -12 percent below trend.
Meanwhile, labor supply fell back relative to the Depression to 8.5 to 10.6 percent above trend.
The demand shortfall relative to trend was smaller still if the implicit salary floor is deemed to
be the actual salaries paid because the trend salary growth rate was higher than the growth rate of
actual salaries. Under these assumptions labor demand was -18 to -25 percent below trend in
1932 to 1934, and within -4 and 2 percent of the trend for the rest of the decade.
8
31
During the rest of the war earnings rose from more than -8.9 percent below trend during
the Depression to levels that still remained -5.5 to -8.8 percent below trend in 1943 through
1946. Employment also rose from -12.7 percent below trend in 1940 to 3.5 to 3.7 percent above
trend. Using the equilibrium model demand rose from -12 percent below trend in 1941 to a
peak right on trend in 1944 and 1946 in Figure 8, while labor supply also fell back to 6.2 percent
above trend in 1944.
The presence of wage and salary ceilings suggests that we use the wage ceiling model,
which can only trace out changes in labor supply. If we assume that the ceiling was set at the
long run trend line, labor supply in Figure 8 (circle dotted line) stayed right on the trend labor
supply. These findings suggest that the draft and volunteering for the War had relatively little
impact on the labor supply for salaried jobs.
In the aftermath of World War II, salaries fell from -8.8 percent below trend in 1945 to a
low of 24.9 percent below trend in 1949 while employment rose sharply from 3.7 percent above
trend to a high 19 percent above trend in 1948. The combination implies that demand stayed
close to trend in the aftermath of the War, while the returning veteran salaried workers increased
labor supply to as high as 28 percent above trend in 1948.
WAGE WORKERS
When studying female and male wage workers, we focus on a setting where we use
hourly wages and total hours worked. We have also looked at annual earnings and employment,
but we felt that annual earnings are strongly influenced by hours and weeks worked, which can
legitimately be considered part of a measure of labor activity. As a result, we used hourly
32
earnings reported separately for male and female production workers as the measure of wages
and used these to calculate total hours worked by each group.
At the moment the use of the
NICB data limits the data to the period 1920 through 1947/48 with some gaps in the mid 1930s
and early 1940. We believe we can add this information eventually.
FEMALE WAGE WORKERS
In discussing the situation for female wage workers we provide information on total
hours worked and hourly earnings in Figure 9 and information on employment and annual
earnings in Figure 10. The noncrisis trend from 1923 to 1929 in total hours worked by female
wage workers in Figure 9 was 3.36 per year and the trend for real hourly earnings was 1.23
percent per year. The growth trends for employment and real average annual earnings in Figure
10 were slower at 1.2 percent and 0.5 percent, respectively. Thus, the 1923-1929 trend was for
women’s annual hours per year to increase at a substantially faster pace than their employment.
Between 1920 and the Recession years of 1921-1922 hourly earnings in Figure 9 fell
from -3.4 percent below trend to more than -6 percent below trend, as total hours fell from 1
percent above trend in 1920 to -6.4 percent below trend in 1921 before rising to 4.8 percent
above trend in 1922. These changes imply that labor supply in Figure 11 was rising from 4 to 7
percent above trend, while demand bounced from -2 to -13 to -2 percent below trend in 1920,
1921, and 1922.
During the noncrisis expansion from 1923 to 1929 total hours and hourly earnings in
Figure 9 stayed close to the trend line with the exception of a -8.2 percent shortfall in hours in
1924 and a 3.4 percent rise above in 1925. In contrast with salaried workers, who did not
33
experience much of an employment shortfall until 1932, employment for female wage workers in
Figure 10 fell to -6.4 percent below trend in 1930 and -13.5 percent below in 1931. Their total
hours worked in Figure 9 dropped even more to -19 percent below trend in 1930 and then
lurched downward to more than -28 percent below trend in 1931. Meanwhile, hourly earnings
remained at 1.6 percent above trend in 1930 and then rose to 5.7 percent above trend in 1931.
The changes imply the demand in Figure 11 fell to more than -23 percent below trend in both
years with supply falling to -5 and then -10.8 percent below trend.
Over the rest of the decade employment fell to -21 percent below trend in 1932 in Figure
10 before rising to -5.4 percent below trend in 1937 and then falling back to -16.4 percent below
in 1938 before rising to only -12.2 percent below trend in 1940.
Average annual earnings in
Figure 10 meanwhile rose from -11.5 percent below trend in 1933 to 6.7 percent above trend in
1936, fell relative to trend in 1938 and then rose to 9.8 percent above trend in 1940.
Hourly earnings and total hours in Figure 9 followed drastically different paths during the
Depression. Real hourly earnings for women spiked to 25 percent above trend in 1934 and 1935
and had jumped again to 43.4-44.8 percent above trend in 1938 and 1939. These spikes were
accompanied by sharp drops in total hours to levels more than -34 percent below trend in 1932 to
1935 and then more than -43 percent below trend in 1938 and 1939.
Use of the equilibrium model implies drops in labor demand in Figure 11 to -46 and -34
percent below trend in 1932 and 1933 but then increases to -34 to -23 percent below trend in
1934-35 and then to -9 percent below in 1939. The fact that hourly earnings rose, suggests that
labor supply from the equilibrium model in Figure 11 also dropped from -32 percent below trend
in 1934 and 1935 to -52.6 percent below trend in 1938 and 1939. The implicit wage floor model
34
with the implicit wage floor rising at the same rate as the trend implies larger drops in labor
demand,in Figure 11 (triangle dotted line), particularly in 1933 through 1935, -42 to -48 percent
below trend and a continued shortfall of -54 and -62 percent in 1938 and 1939.9
World War II and its aftermath.
In 1941 employment in Figure 10 rose from -12.2 percent below trend to almost exactly
on trend, while average annual earnings in 1941 also rose to 13.21 percent above trend in 1941
in Figure 10. When the focus shifts to hourly earnings and total hours worked in Figure 9,
hourly earnings were even more elevated than in the late 1930s, rising to 57.5 percent above
trend in 1941, while total hours worked rose from -43 percent below trend in 1939 to -38.4
percent below in 1941. These changes were associated with a rise in Demand relative to trend
from -9 percent below in 1939 to 9 percent above in 1941, while labor supply fell to -64.5
percent below trend from -52.6 percent below trend in the late 1930s.
While the U.S. was fighting the War, average annual earnings and employment in Figure
10 skied to highs over 40 percent above trend. Hourly earnings in Figure 9 rose even more to a
peak around 68 percent higher than trend in 1944 and 1945 while total hours rose from -38.4
percent below trend in 1941 to barely 3.3 percent above trend in 1944. Using the equilibrium
model the War years saw a surge in demand in Figure 11 to as high as 73 percent above trend in
1944, which was met by a similar size cut of -68.8 percent in labor supply relative to trend.
The wage ceiling model in which the ceiling is set at the trend wage implies that labor
supply in Figure 11 (circle and dotted line) was very close to the trend labor supply from 1942
If the implicit wage floor model assumes the actual path to the wage to be the floor, then the
demand shortfall is slightly larger at -49 percent below trend in 1932 and 1933, -70 to -66
percent below in 1934 and 1935 and -98 to -91 percent below in 1938 and 1939.
9
35
through 1946. In setting wage and salary ceilings one of the goals of the War Labor
Commission was to insure that women were allowed to reap the benefits of their new work.
Their hourly earnings in real terms rose 11 percent over the course of the war compared to only 6
percent for hourly earnings for men. The ceiling may not have been as much of an issue for
wage working women as for other categories of workers; therefore the equilibrium model might
be a more accurate picture of the setting.
In the aftermath of the war, employment in Figure 10 fell back from 40 percent above
trend in 1944 to around 11-12 percent in 1950, however, annual earnings remained 38 to 45
percent above trend. Similarly, real hourly earnings in Figure 9 remained around 66.7 to 69.5
percent above the trend in 1946 and 1947 (they exploded to 160.80 above trend in 1948, which
seems unbelievable, so we left that out), while total hours worked fell from the trend in the war
to -36 percent below trend, the type of shortfall seen during the Depression. At the same time,
total hours fell to -24 to -30 percent below trend. This implies that labor demand in Figure 11
fell from 70 percent above trend in 1944 to a still very high 29 percent above trend in 1947.
Meanwhile labor supply in Figure 11 shifted back to -74 percent below trend.
MALE WAGE WORKERS
The 1920s trends for male workers involved a rise in real average annual earnings of 1.2
percent per year but a fall of -1.7 percent per year in employment in Figure 12. The trend for
average hourly earnings was slightly faster than for annual earnings in Figure 13 at 1.4 percent
per year, while total hours worked fell at a slower rate that employment of 0.8 percent per year.
36
As World War I raged in Europe, male employment was 13 to 18 percent higher than the
backcasted 1920s trend, while average annual earnings rose from -7 percent below trend in 1916
to right around trend in 1918. During the recession of 1921-22 average annual earnings dipped
to -10 to -14 percent below trend as employment dipped to -9 to -23 percent below. After being
close to trend in 1920, hourly earnings dipped -4 to -5.9 percent below trend and hours dropped 38 and -17.5 percent below trend in the 1921-22 recession. These drops are consistent with
drops in demand of -52 and -28 percent in 1921 and 1922, respectively, and with little deviation
in supply from the trend. Over the rest of the decade earnings fluctuated within a range of -2.3
to 2.2 percent of trend earnings, while hours fluctuated within a range of -6.4 to 5.2 percent.
These fluctuations are the largest around trend of the four groups. The supply shifts remained
within a range of -3.3 to 3.2 percent of the trend and demand fluctuated within a range of -2.8 to
2.4 percent.
In 1930 the first full year of the Depression total hours in Figure 12 fell sharply to -12
percent below the already declining trend, while hourly earnings remained slightly above trend,
implying offsetting reductions in demand and supply. From that point employment in Figure 13
followed the 1920s trend downward with fluctuations below the trend in the early 1930s and
above the trend in the late 1930s. Average annual earnings in Figure 13 remained below the
1920s trend throughout the 1930s. Meanwhile, real hourly earnings rose to 3.1 to 5.7 percent
above trend in 1931-1933 as total hours fell from -41.6 to -71 percent below trend. Over the rest
of the decade hourly earnings rose to 17 percent above trend in 1934 and 1935 and then to
roughly 29 percent above trend in 1939. Over the same period total hours rose to levels that
were -33 to -51.5 percent below trend.
37
In the equilibrium model these changes implied a sharp drop in labor demand in Figure
14 to -74 to -86 percent below trend in 1932-1933 with increases in demand to shortfalls below
trend of -63 and -52 percent below in 1934 and 1935 and then to -36 percent below trend in 1938
and -12 in 1939. The increase in hourly earnings was consistent with reductions in labor supply
of -16 percent below trend in 1932 and 1933, -24.8 to -26.2 percent below in 1934 and 1935 and
more than -35 percent below in 1938 and 1939. The increase in hourly earnings is also
consistent with the implicit wage floor model in which the floor was rising through from 1932
through the end of the decade. In the implicit wage floor model in which the floor follows the
noncrisis trend path, the demand reductions in Figure 14 (triangle dotted line) are slightly larger
than under the equilibrium model with declines of -52 percent below trend in 1932, -89 to -52
percent below in 1933 through 1935 and -28 and -18 percent below in 1939.10
During the military buildup and World War II (1941-1945), employment in Figure 13
rose well above trend and annual earnings rose from below trend in the late 1930s to above trend
in the early 1940s. The rise in hourly earnings in Figure 12 above trend that started in the
Depression continued to levels that exceeded the trend by 33 to to 41 percent, while total hours
rose to 4.5 percent above trend in 1941 and then rose some more 15 to 23 percent above trend in
1942 through 1945. Using the equilibrium model, these changes are associated with increases in
demand to spots 61 to 67 percent above the trend and declines in supply to -29 to -37 percent
below trend. The wage ceiling model using the trend line for the wage ceiling implies slight
If the actual wage is used as the wage floor, the shortfalls in demand are even larger. In the
wage ceiling models for the War, we don’t talk about the situation where the wage ceiling
follows that actual wage because the estimate of the supply shift relative to trend is the same as
when we assume the equilibrium model.
10
38
supply increases, largely because the actual hourly earnings were 30-40 percent above the trend
wage predicted by the 1920s trend.
In the aftermath of the war, annual earnings and employment in Figure 13 fell some from
the Wartime peaks relative to trend and remained relative flat but still above the long run 1920s
trend. Hourly earnings in Figure 12 were still 30.7 percent above the 1920s trend in 1948.
Hours worked dipped to a low of 8 percent above trend in 1946 during the demobilization and
then recovered to exceed the trend by 23 to 28 percent in 1947 and 1948. These figures imply
that the demand in Figure 14 for male labor remained 61 to 65 percent above trend after the war,
while labor supply increased to a level that was -26 to -28 percent below trend.
CONCLUSIONS
The Pennsylvania data offer an opportunity to examine the large annual fluctuations in
labor markets for males and females and salaried and production employees during the crises and
booms in the first half of the twentieth century. Using information on earnings and the amount
of labor, assumptions about labor demand and supply elasticities, and a counterfactual trend from
the 1920s boom, we derived rough estimates of the size of shifts in labor demand and supply
relative to trend that can serve as a guide to future research about the factors that can explain
those deviations from the trends. The process was made more difficult by the potential existence
of implicit wage floors driven by federal policies in the 1930s and the actual wage and salary
ceiling set during World War II. The directions of the estimated deviations from trend of supply
and demand within a category across time are reasonably robust to the choice of elasticities.
However, the absolute sizes are very rough calculations that are sensitive to the elasticities.
39
We chose to focus on deviations from a long run trend rather than year to year
fluctuations because the period was struck by the three large-scale crises and we wanted to see
how people fared relative to a counterfactual prosperous peacetime setting. There are extensive
discussions in particular about how World War II influenced the economy and we felt like a long
run counterfactual based on prosperous 1920s growth trends would provide a useful start for the
conversation.
The 1923-1929 growth trend implied that women salaried and production workers faced
positive prospects for employment with growth rates of 1.3 and 1.2 percent per year with
production hours growing 3.4 percent per year. Real salaries and hourly earnings were growing
at 1.4 and 1.2 percent per year. The First World War stimulated both the demand and the supply
for female salaried workers with an overhang of supply after the war, while annual earnings were
well below trend for production workers. The 1921-1922 recession appears to have been driven
largely by a drop in labor demand with little impact on labor supply for both salaried and wage
workers.
The Great Depression led to disastrous drops in the demand for both types of labor. The
drop started in 1930 for production workers and a year later for salaried workers. Employment
of production and salaried workers sank to a low in 1932. Employment for salaried workers was
slow to recover, rising little relative to trend until 1935 and then did not reach the 1920s trend
until 1941. The employment of production workers then started rising back toward the trend but
did not reach it until 1940. An examination of total work hours offers a more negative picture
because they dropped below trend much further and did not return to trend until the heart of
World War II. In contrast, the trend for real average compensation for salaried workers was flat
40
throughout the 1930s. Annual earnings for female production workers rose to above trend by
1935 while hourly earnings skyrocketed relative to trends. In an equilibrium model the
combination of suppressed employment and flat or rising wages would imply substantial
reductions in labor supply to more than offset the depressed labor demand. An alternative wage
floor model based on federal jawboning and policies suggest that there was a fixed floor on
salaries but a rising floor on hourly wages for women production workers.
During World War II employment and hours worked for both types of female workers
rose sharply, the rise was well above trend for employment in both cases and reached the trend
for total hours worked by production workers. Salary ceilings likely slowed the growth of
annual earnings for salaried workers so that their salaries reached the long term trend in 1945.
Meanwhile annual earnings for production workers were more than 40 percent higher than trend
predictions in the heart of the war. Hourly earnings were high entering the war and grew roughly
12 percent during the war despite the salary ceilings. We know that demand rose sharply during
the war with the equilibrium models predicting increases of 60 percent for both types of workers
but the wage ceilings may have caused us to underestimate the growth. Labor supply appears to
have been elevated somewhat for female salaried workers and on trend for production workers.
In the aftermath of the War labor demand for female salaried and production workers fell
back some from the wartime peak but still remained more than 25 percent above the levels
predicted by the 1920s trends. The decline in demand caused employment for both types of
workers to fall back from the postwar highs but employment remained elevated more than 25
percent above trend for salaried workers and 10 to 15 percent above for production workers,
although their total hours worked fell below trend. A rise in labor supply relative to trend kept
41
annual salaries for salaried workers somewhat below trend. A much sharper drop in labor supply
relative to trend for production workers kept their annual earnings more than 39 percent above
trend and hourly earnings more than 60 percent above trend. The still large labor demand after
the war suggests that the foot in the door that many women gained during the War likely
changed employers’ attitudes toward women.
The 1920s trends suggest that male salaried workers and male production workers faced
quite different situations. Employment for male salaried workers was rising by 1.4 percent per
year with real annual earnings rising 2.7 percent per year. In contrast, employment for wage
workers was falling 1.7 percent per year, with total hours falling 0.8 percent per year. Those
who kept their jobs saw hourly earnings rise 1.4 percent per year and annual earnings rise 1.2
percent on average.
World War I led to substantial increases in the demand for male salaried workers while
labor supply remained closed to trend levels, suggesting that salaried male workers were not
drawn into the conflict. Meanwhile, employment for male production workers was elevated
above trend with earnings rising to the trend level. The recession of 1921-2 was demand driven
for both types of workers with little response on the supply side.
The Great Depression led to sharp drops in both employment and average annual
earnings relative to trend for salaried workers. The equilibrium model implies that nearly all of
this drop was due to a fall in labor demand relative to the 1920s trend with labor supply elevated
somewhat above the trend. However, average annual earnings were relatively flat throughout the
Depression, which may have been a sign instead of an implicit wage floor that rose slowly over
the course of the 1930s.
42
During the Depression employment of production workers continued to follow the
downward trend of the 1920s and total hours worked fell well below the trend. Average annual
earnings bottomed out around 1932 and 1933 and then begin to rise. The surprise was the sharp
rise in real hourly earnings above trend that started around 1933. These changes were consistent
with drops in labor demand relative to an already downward trend of nearly -86 percent in 1932
before rising to -69 to -35 to -12 percent below trend over the rest of the decade. In the
equilibrium model, these changes imply sizeable reductions in labor supply, possibly due to a
strong discouraged worker effect. An alternative story is that there was an implicit wage floor
that held earnings up.
World War II led to an expansion in male salaried employment back to trend levels,
while real salaries rose somewhat but still did not catch up with the 1920s trend predictions.
Essentially, labor demand rose back to the trend during the war. Labor supply fell back slightly
towards a level that was either at trend in one wage ceiling model or around 6 percent above
trend in the equilibrium model.
The military mobilization before World War II and then the
War itself led to increases well above trend in employment, average annual earnings, hourly
earnings, and total hours worked.
After the War labor demand for male salaried workers held steady at the trend, while
labor supply increased. This caused employment to rise well above trend while average annual
real earnings fell well below the long run trend predicted by the boom years of the 1920s.
Among production workers post-War annual earnings returned to levels still somewhat above the
long run trend, while employment remained flat, although elevated above the long run downward
trend. Meanwhile average hourly earnings remained more than 30 percent above trend after the
43
war. These patterns were consistent with a change to a flat rather than declining trend in
industrial demand after the war.
44
REFERENCES
Acemoglu, D. Autor, D.H. and Lyle, D. (2004), “Women, war, and wages: The effect of female
labor supply on the wage structure at mid-century”, Journal of Political Economy 112, 497-551.
Beney, Ada. Differentials in Industrial Wages and Hours in the United States: National
Industrial Conference Board Studies: No. 238. New York: National Industrial Conference
Board, 1938.
Cole, L. Harold and Ohanian E. Lee. (2004), “New Deal Policies and the Persistence of the Great
Depression: A General Equilibrium Analysis,” Journal of Political Economy 112 (4), 779-816.
Costa, D.L. (2000), “From mill town to board room: The rise of women’s paid labor”, Journal of
Economic Perpectives 14(4), 101-122.
Eggertsson, G. (2008) “Great Expectations and the End of the Depression.” American
Economic Review 98 (4): 1476-1516.
Eggertsson, G. (2012) “Was the New Deal Contractionary.” American Economic Review 102
(February): 524-555..
Filer, Randall, Daniel Hamermesh, and Albert Rees. 1995. The Economics of Work and Pay, 6th
Edition. New York: HarperCollins College Publisher.
Freeman, Richard. 1980. “Employment and Wage Adjustment Models in U.S. Manufacturing,
1950-1976.” Economic Forum 11: 1-27.
Finegan, T.A. and Margo, R.A. (1994), “Work relief and the labor force participation of married
women in 1940”, The Journal of Economic History 54(1), 64-84.
Goldin, C. (1990), Understanding the Gender Wage Gap: An Economic History of American
Women, Oxford University Press.
Goldin, C. (1991), “The role of WWII in the rise of women’s employment”, American Economic
Review 81, 741-756.
Goldin, C. and Katz, L. (2008), The Race between Education and Technology, Harvard
University Press.
Hamermesh, D.S. (1993), Labor Demand, Princeton University Press.
Hoover, Herbert. 1953. The Memoirs of Herbert Hoover: The Great Depression 1929-1941.
New York: Macmillan.
Johnson, Ryan. 2004. Ph.D. Dissertation, University of Arizona.
45
Miriam King, Steven Ruggles, Trent Alexander, Donna Leicach, and Matthew Sobek. Integrated
Public Use Microdata Series, Current Population Survey: Version 2.0. [Machine-readable
database]. Minneapolis, MN: Minnesota Population Center [producer and distributor], 2004.
Neumann , Todd, Jason Taylor, and Price Fishback. “Comparisons of Weekly Hours Over the
Past Century and the Importance of Work Sharing Policies in the 1930s,” with. American
Economic Review Papers and Proceedings 102 (May 2013): 105-110.
Pennsylvania Bureau of Statistics. Report on Productive Industries, Public Utilities and
Miscellaneous Statistics of the Commonwealth of Pennsylvania for the years 1916 to 1950.
Pennsylvania
Pennsylvania Department of Internal Affairs. Report on Productive Industries and
Miscellaneous Statistics of the Commonwealth of Pennsylvania. Various years from 1916 to
1950.
Pennsylvania Department of Internal Affairs. Annual Report of the Secretary of Internal Affairs
of the Commonwealth of Pennsylvania: Industrial Statistics. Various years from 1916 to 1950.
Rose, Jonathan D. 2010. “Hoover’s Truce: Wage Rigidity in the Onset of the Great
Depression” Journal of Economic History 70 (December): 843-870.
Shatnawi, Dina. 2010. “Women and Labor Market Segregation Across Occupations and
Industries.” Ph.D. Dissertation, University of Arizona.
Taylor, J. (2011) “Work-Sharing During the Great Depression: Did the ‘President’s
Reemployment Agreement’ Promote Reemployment?” Economica 78: 133-158.
Taylor, Jason and P.G. Klein. 2008. “Anatomy of a Cartel: the National Industrial Recovery
Act of 1933 and the Compliance Crisis of 1934. Research in Economic History 26: 235-71.
Tick, L.S. and Oaxaca, R.L. “Technological Change and Gender Wage Differentials”, Working
Paper, October 12, 2008.
46
Table 1
Implications for Demand and Supply Relative to Trend from
Comparisons of Earnings and Employment Relative to Trend.
Earnings
Relative to
Trend
Above
Below
Above
Below
Above
At Trend
Below
At Trend
Employment
Relative to
Trend
Above
Below
Below
Above
At Trend
Above
At Trend
Below
Dominant Shift Relative to Trend
Demand Above Dominates
Demand Below Dominates
Supply Below Dominates
Supply Above Dominates
Demand Above offset by Supply Below
Demand Above offset by Supply Above
Demand Below offset by Supply Above
Demand Below offset by Supply Below
47
Figure 1
Labor Demand Shifts Relative to Trend Under
Different Demand Elasticities Based on Female
Salaried Workers' Employment and Salaries,
1916-1950
100.000
80.000
60.000
40.000
20.000
0.000
-20.000
-40.000
-60.000
-80.000
-100.000
1915
1920
1925
1930
Demand Relative to Trend, a1=1/0.55
1935
1940
1945
Demand Relative to Trend, a1=1
1950
48
Figure 2
Labor Supply Shifts Relative to Trend Under
Different Supply Elasticities Based on Female
Salaried Workers' Employment and Salaries,
1916-1950
100.000
80.000
60.000
40.000
20.000
0.000
-20.000
-40.000
-60.000
-80.000
-100.000
1915
1920
1925
1930
Supply Relative to Trend, b1=1/5.5
1935
1940
1945
Supply Relative to Trend b1=1
1950
49
Figure 3: Measuring Labor Demand Shifts with an Implicit Wage Floor in the Great Depression
Ln(w)
2.3
2.2
2.1
2
D
CA
1.9
A
1.8
A
1.7
E
BD
AA
A
D33
1.6
D35
DTrend
16.77
16.72
1.5
16.5
16.6
16.7
16.8
16.9
17
17.1
17.2
Ln(E)
17.3
50
Figure 4: Measuring Labor Supply Shifts with a Wage Ceiling During World War II
2.2
Ln(w)
2.1
S Trend
2
1.9
1.8
A
C
1.7
B
D
A
A
S43
D43
A
A
1.6
DTrend
1.5
1.4
16.6
16.7
16.8
16.9
17
17.1
17.2
17.3
17.4
17.5
Ln(E)
17.6
51
Figure 5
Female Salaried Workers: Fluctuations in Salaries and
Employment Around 1923-1929 Trend Line, 1916-1950
2.500
Index 1920=1
2.000
1.500
1.000
0.500
0.000
1915
1920
1925
1930
1935
1940
current employment Employment
current salary Salary
trend employment Trend Employment
trend salary. Trend Salary
1945
1950
52
Figure 6
Female Salaried Workers: Labor Supply and Demand Shifts
Relative to 1923-1929 Trend, 1916 -1950
100.000
80.000
60.000
40.000
20.000
0.000
-20.000
-40.000
-60.000
-80.000
-100.000
1915
1920
1925
1930
1935
1940
Supply Relative to Trend: Equilbrium
Demand Relative to Trend: Equilibrium
Demand Relative to Trend: Floor
Supply Relative to Trend: Ceiling
1945
1950
53
Figure 7
Male Salaried Workers: Fluctuations in Salaries and Employment
Around 1923-1929 Trend Line, 1916-1950
2.5
2
Index 1920=1
1.5
1
0.5
0
1915
1920
1925
Employment
1930
Salary
1935
Trend Employment
1940
Trend Salary
1945
1950
54
Figure 8
Male Salaried Workers: Labor Supply and Demand Shifts
Relative to 1923-1929 Trend, 1916 -1950
100.00
80.00
60.00
40.00
20.00
0.00
-20.00
-40.00
-60.00
-80.00
-100.00
1915
1920
1925
1930
1935
1940
1945
Supply Relative to Trend: Equilbrium
Demand Relative to Trend: Equilibrium
Demand Relative to Trend: Floor
Supply Relative to Trend: Ceiling
1950
55
Figure 9
Female Wage Workers: Fluctuations in Hourly Earnings and Total
Hours Worked Around 1923-1929 Trend Line, 1920-1947
2.500
Index 1920=1
2.000
1.500
1.000
0.500
0.000
1915
1920
Total Hours
1925
Hourly Earnings
1930
1935
Trend Hours
1940
Trend Earnings
1945
56
Figure 10
Female Wage Workers: Fluctuations in Annual Earnings and
Employment Around 1923-1929 Trend Line, 1916-1950
2.5
2
Index 1920=1
1.5
1
0.5
0
1915
1920
Employment
1925
1930
Annual Earnings
1935
Trend Employment
1940
1945
Trend Earnings
1950
57
Figure 11
Female Wage Workers: Labor Supply and Demand Shifts Relative
to 1923-1929 Trend, 1920-1948 for Hourly Earnings and Total
Hours
100.000
80.000
60.000
40.000
20.000
0.000
-20.000
-40.000
-60.000
-80.000
-100.000
1915
1920
1925
1930
1935
1940
Supply Relative to Trend: Equilbrium
Demand Relative to Trend: Equilibrium
Demand Relative to Trend: Floor
Supply Relative to Trend: Ceiling
1945
1950
58
Figure 12
Male Wage Workers: Fluctuations in Hourly Earnings and Total
Hours Worked Around 1923-1929 Trend Line between 1916 and
1950
2.5
Index 1920=1
2
1.5
1
0.5
0
1915
1920
1925
Total Hours
1930
Hourly Earnings
1935
Trend Hours
1940
Trend Earnings
1945
1950
59
Figure 13
Male Wage Workers: Fluctuations in Annual Earnings and
Employment Around 1923-1929 Trend Line, 1916-1950
2.5
Index 1920=1
2
1.5
1
0.5
0
1915
1920
1925
Employment
1930
Annual Earnings
1935
Trend Employment
1940
Trend Earnings
1945
1950
60
Figure 14
Male Wage Workers: Labor Supply and Demand Shifts
Relative to 1923-1929 Trend, 1920 -1948 for Hourly Earnings
and Total Hours
100.00
80.00
60.00
40.00
20.00
0.00
-20.00
-40.00
-60.00
-80.00
-100.00
1915
1920
1925
1930
1935
1940
1945
Supply Relative to Trend: Equilbrium
Demand Relative to Trend: Equilibrium
Demand Relative to Trend: Floor
Supply Relative to Trend: Ceiling
1950
61