Читать книгу Out of Work - Richard K Vedder - Страница 39

Before 1913, price data are very crude, with the consumer price index reported only to the nearest whole number. Thus, our interpretation of the proximate determinants of the first major episode of rising unemployment in 1908 must be somewhat cautious owing to data limitations. The evidence is, however, that a combination of price deflation and a fairly sharp productivity decline led to a rise in the adjusted real wage, more than offsetting a modest (1.1 percent) decline in money wages. Real wages rose in a period of falling labor productivity, pushing the adjusted real wage up fairly sharply. This, in turn, led to a near tripling in the unemployment rate.

The unemployment rate returned fairly quickly to a range near equilibrium in 1909. The real wage-enhancing deflation ended. More importantly, labor productivity rose over 7 percent, more than the rise in money wages, leading to a decline in the adjusted real wage.

The 1907–8 surge in unemployment triggered by rising adjusted real wages was unquestionably in large part a result of the shock to prices. Our regression estimates suggest that they had the direct effect of raising the unemployment rate by about two percentage points, approximately 40 percent of the observed increase. The evidence on wholesale prices suggests that the true decline in prices was in fact probably greater than our inadequate consumer price data indicate, so the role of price shocks may be even greater. The more than 8 percent drop in the stock of money from May 1907 to February 1908 resulted at first from gold outflows but after October 1907 reflected the banking panic that developed in New York, with the resultant rise in depositor fear and a shift from deposits to currency. Between May 1907 and February 1908, bank deposits declined nearly 10 percent while currency holdings rose almost 6 percent.⁹

The story of rising unemployment in 1908 is highly consistent with the standard neoclassical, the Austrian, and also the monetarist interpretations of the period. Austrians emphasize the discoordinating effects of price shocks, the monetarists the link between money changes and prices, and the neoclassical economists the importance of relative prices. While there are differences in perspectives on some issues among these groups, all provide useful insights into the developing disequilibrium in the labor market and its solution.

While there may have been economists who believed that the unemployment of the era would be solved in time by price and wage adjustments, they were certainly not outspoken in expressing themselves. By contrast, a number of prominent Americans with an activist, Keynesian-style economic philosophy spoke up forcefully. In a speech at Cooper Union, William Jennings Bryan implied that the government should serve as the “employer of last resort,” guaranteeing jobs to those needing one.¹⁰ Even Theodore Roosevelt, in speeches made during the 1908 presidential campaign, seemed to lend his support to the principle of “maintaining the prosperity scale of wages in hard times.”¹¹

Still, the prevailing atmosphere was not one of clamor for government intervention. For example, the Nation, even then a liberal periodical, showed some skepticism about expanding public-works employment: “there lies the ever-present danger in ‘making work.’ The work is badly and expensively done, and what is really ‘made’ is an addition to the ranks of the unemployed.”¹²

The 1914–15 downturn usually gets less attention among economic historians, but from an unemployment perspective it was a more significant episode than that arising from the panic of 1907. In terms of the components of the adjusted real wage, the 1914–15 downturn resulted almost entirely from a sharp productivity shock. Money wages moved very little in either year; the same is true of prices, which rose very slightly; thus, real wages changed very little. A massive productivity shock, however, led to a very severe decline in output per worker in 1914. Output per man hour fell by 6.5 percent in 1914, the largest productivity decline observed in the twentieth century. The cause of the decline is something of a mystery, although conventional wisdom probably would attribute it at least in part to the outbreak of war. It is not clear, however, how the war specifically impacted on productivity, particularly since it only started in August. The productivity decline almost certainly does not reflect changing capital stock per worker (“Smithian” productivity change), as the evidence does not show a decline in the capital-labor ratio, although good annual data on this score are not available for this period.

Was the decline the result of “Keynesian” productivity movements? Specifically, did a decline in autonomous spending lead to falling output, while the number of workers did not fall as much? To examine that possibility with respect to the most important component of aggregate demand, consumption spending, we estimated a simple Keynesian consumption function for the period 1901 to 1928. The statistical fit was very good, with the coefficient of multiple determination (R²) approaching .98.

Deviations of actual consumption spending from what the consumption function relationship predicts are a measure of shifts in the propensity to consume from the long-run trend. Examination of those deviations (“residuals” to econometricians) shows that consumption in 1914 rose substantially above the predicted amount; there was an increase, not a decrease, in autonomous consumption. Indeed, the “overconsumption” (relative to the long-run trend) in 1914 was the greatest for any year in the entire 1901–1928 period. Consumption remained above trend (although less so) in 1915. Accordingly, the productivity drop cannot be attributed to underconsumption. As mentioned in chapter 3, based on longer-term evidence, there is no basis to believe that shifts in aggregate demand are systematically related to changes in labor productivity.

Much of the productivity decline may well represent what we previously termed “Schumpeterian” productivity change—exogenous, random occurrences that are reflected in rises and falls in the rate of innovative activity. This is also consistent with much of the new classical literature on the real business cycle. Of course, 1914 was the beginning of World War I, and some structural shifts in output probably were beginning to occur, shifts that may have rendered some of the capital stock less useful and contributed to the productivity decline.

Policymakers did relatively little to respond to the mounting unemployment in 1914–15; whatever progressivism Woodrow Wilson possessed did not translate into economic activism to deal with the problem. In his major message in December 1914, he did not even mention unemployment.¹³ Some talk was given to making it easier for the unemployed to go into farming; the Labor Department held a conference to promote intergovernmental cooperation to deal with the issue.¹⁴ But the problem seemed to solve itself before governmental efforts came to anything.

To be sure, there were some relatively isolated cries for more forceful governmental intervention. In a remarkable editorial that espoused a Keynesian approach some two decades before Keynes himself did, the New Republic proposed “to enrich the future through the transmuting of waste labor into permanent improvements and valuable stocks. … The only real obstacle to effective action … is a short-sighted reluctance on the part of the government to increase the national debt.…”¹⁵ This call for what later was termed countercyclical fiscal policy was ignored.

Following 1915, unemployment fell back to near-normal or equilibrium levels in 1916 and 1917, and then declined to 1.4 percent, well below the equilibrium level, in 1918 and 1919. Our analysis of that decline is somewhat handicapped by sharp movements in wages and prices, making the measurement of changes in real wages a somewhat hazardous process. Any inadequacies in the consumer price index were probably magnified during this period of intense inflation. One thing is clear: labor productivity rose sharply in the 1918–19 period (8 percent in 1918, 6.7 percent in 1919), and hence was the leading force in the fall in the adjusted real wage.

Despite the data problems, the model still does reasonably well in accounting for the unemployment decline. It indicates 1.9 percent unemployment for 1918, well below the normal rate although somewhat above the actual rate of 1.4 percent. As to 1919, the model dramatically underpredicts (a negative rate versus the actual rate of 1.4 percent), but captures the essential low-unemployment situation prevailing during that era.