Review of Austrian Economics - The Ludwig von Mises Institute

Vedder and Gallaway: The Great Depression of 1946 25
difficult for a variety of reasons. There is no accepted data series
giving hourly wages for the entire labor force before 1947. Annual
earnings figures are of questionable value because of a major reduction
in overtime work at the conclusion of the war. Regarding prices,
the deficiencies of price indices, particularly in a period when price
controls are changing, are well known. Similarly, deficiencies in price
indices impact on the calculation of labor productivity.
Nonetheless, we calculated the adjusted real wage for labor some
18 different ways, using three different measures of hourly wages,
three different price indices, and two different estimates of changing
labor productivity. Specifically, we used hourly earnings in manufacturing,
retail trade, and contract construction for our money wage
measure, and the consumer price index, wholesale price index, and
GNP price deflator in calculating real wages, and real private gross
domestic product per man-hour, and real private gross domestic
product per unit of labor input as our measure of labor productivity. 47
The calculations reveal that for 1946, some 14 of 18 estimates
show a decline in the adjusted real wage from 1945 levels, with the
median decline being 2.35 percent. In no case was there an estimated
increase in the adjusted real wage of greater than two percent.
Similarly, making calculations for 1947 reveals even more striking
results. Some 17 of 18 estimates of the adjusted real wage for 1947
are below 1945 levels (the single exception showed a 0.5 percent
increase), with the median estimate recording a decline of 7.15
percent. Using the median, it would appear the adjusted real wage
tended to fall some in 1946, and continued to fall in 1947, perhaps
explaining the continued robust growth in employment that year.
Elsewhere we have argued that New Deal "underconsumptionist"
reasoning led to wage-enhancing legislation that prolonged the Great
Depression of the 1930s. 48 Some dimensions of reconversion served to
reduce (although not eliminate) some deleterious unemployment effects
of the New Deal legislative initiatives. For example, the peacetime
transition meant a fall in the average work week, as weary wartime
workers sought an increase in leisure time. With a fall in the length of
the average workweek came a decline, other things equal, in money
wages. Suppose a worker making one dollar per hour worked a 45 hour
week in early 1945. Because of the Fair Labor Standards Act of 1938,
the worker received $1.50 per hour for hours worked past 40, or a total
47 The Historical Statistics of the United States, Colonial Times to 1975 was used
in the calculations. With that source, the price distortions with respect to the GNP price
deflator were modest compared with later revisions.
48 Gallaway and Vedder, "Wages, Prices and Employment."