Journal Article

Labour markets in the interwar period and economic recovery in the UK and the USA

Timothy J. Hatton and Mark Thomas

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 26, issue 3, pages 463-485
Published in print January 2010 | ISSN: 0266-903X
Published online January 2010 | e-ISSN: 1460-2121 | DOI: https://dx.doi.org/10.1093/oxrep/grq023
Labour markets in the interwar period and economic recovery in the UK and the USA

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We examine the labour-market experience of the UK and the US in the recessions of the early 1920s and the early 1930s and the subsequent recoveries. These were deep recessions, comparable to that of 2008–9, but the recoveries were very different. In the UK the recovery of the 1920s was incomplete, but that of the 1930s was rather less protracted than in the US. By contrast the US experienced very strong recovery in the 1920s but weaker recovery from the much deeper recession of the 1930s. A key ingredient to understanding these patterns is the interaction between economic shocks and labour-market institutions. Here we survey the large literature on interwar labour markets to identify the key elements that underpinned labour-market performance. We find that developments in wage-setting institutions and in unemployment insurance inhibited a return to full employment in interwar Britain, while, in the US, New Deal legislation impeded labour-market adjustment in the 1930s. We conclude with an assessment of the policy responses to labour-market crises in the past and in the present.

Keywords: unemployment; economic recovery; wage-setting; E24; J65; N12; N14

Journal Article.  11909 words.  Illustrated.

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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