Review of Austrian Economics - The Ludwig von Mises Institute

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Vedder and Gallaway: The Great Depression of 1946 23 Table 5 Selected Characteristics of the American Labor Force, June 1945 and June 1946 Labor Force Characteristic June 1945 a June 1946 a Non-Institutional Population 1 * Total Labor Force Total Employment Federal Employment Armed Forces Civilian Non-Federal Employment Civilian Employment Male Female Female Civilian Employment as % of Total Unemployment Male Female Unemployment Rate (% of Civilian Labor Force) Unemployment Rate (% of Total Labor Force) Labor Force Participation Rate Employment-Population Ratio 105,290 67,590 66,700 15,849 12,130 3,719 50,851 54,570 34,710 19,860 36.39% 890 460 430 1.60% 1.32% 64.19% 63.35% 106,210 62,000 59,430 5,879 3,070 2,809 53,551 56,360 39,650 16,710 29.65% 2,570 2,010 560 4.36% 4.15% 58.37% 55.96% a Age 14 or over. b In thousands. Sources: 1949 Statistical Supplement: Survey of Current Business, p. 53; Monthly Labor Review (August and September 1946). To begin our look at this evidence, it is interesting to compare labor force statistics at the height of mobilization, June 1945, with statistics just exactly one year later, June 1946 (see table 5). The total labor pool grew by nearly one million over the year, yet the labor force fell by nearly 5.6 million. The end of the war was accompanied by an enormous drop in the labor force participation rate. In particular, millions of women voluntarily decided to withdraw from the labor force and reverted to their traditional roles as mothers, wives, and housekeepers. About 56 percent of the potential unemployment created by the almost 10 million decline in federal
24 The Review of Austrian Economics, Vol. 5, No. 2 employment was absorbed by voluntary exit from the labor force. The word "voluntary" in the preceeding paragraph is important. It is presumed in a free society that labor voluntarily enters into labor market decisions. Yet during World War II, millions of men were drafted and became part of the labor force; some of them may have not voluntarily been part of that labor force in the absence of conscription. Thus the wartime unemployment rates of under two percent were low, at least in part, because the normal rules of non-coercive labor market participation did not apply. Thus the postwar rise in the reported unemployment rate, modest as it was, still overstated the true recessionary conditions that existed. Yet the sudden reversion of labor supply to more normal levels was not the only factor in the moderate postwar unemployment. Non-federal employment grew 2.7 million in this first postwar year, in a period before the major consumer goods industries had resumed full production. Indeed, factory employment in June 1946 was still more than 10 percent below the June 1945 levels (because of declining defense-related production), implying the job growth in non-manufacturing, non-federal employment was actually more than four million jobs. More than 27 percent of the problem that the release of 10 million government employees created was eliminated by increased civilian employment, most of it in the private sector. If defense industries are considered, demobilization from June 1945 to June 1946 meant the loss of over 11 million jobs, about four million of which (about 36 percent) were absorbed in the civilian economy. Why was non-manufacturing civilian employment soaring by over 10 percent in one year, particularly when one considers that economists were widely predicting a resumption of the Great Depression of the 1930s, and when one considers that the mainline durable goods industries (which were in manufacturing in any case) were still at below normal production? How could millions of new civilian jobs be created when there was "underconsumption" by normal standards? The answer lies, we think, in the other forms of unemploymentdetermining labor market adjustments discussed above: changes in money wages, prices, and the productivity of labor. The money wage divided by prices is called typically the "real wage." Real wages adjusted (by division) to take account of productivity changes can thus be called the "adjusted real wage." It is our contention that, in addition to reduced labor supply, a decline in the adjusted real wage helped absorb the more than 11 million workers released in the first year of the demobilization. Directly calculating what happened to the adjusted real wages is
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Dedication Volume 5, number 1, of t
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Articles
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Austrian Capital and Interest Theor
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Book Reviews
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