Hostname: page-component-76fb5796d-9pm4c Total loading time: 0 Render date: 2024-04-27T00:38:31.476Z Has data issue: false hasContentIssue false
  • English
  • Français

Did Technology Shocks Drive the Great Depression? Explaining Cyclical Productivity Movements in U.S. Manufacturing, 1919–1939

Published online by Cambridge University Press:  14 November 2011

ROBERT INKLAAR ,
HERMAN DE JONG  and
REITZE GOUMA
ROBERT INKLAAR*
Affiliation:
Assistant Professor, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands. E-mails: r.c.inklaar@rug.nl.
HERMAN DE JONG*
Affiliation:
Assistant Professor, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands. E-mails: h.j.de.jong@rug.nl.
REITZE GOUMA*
Affiliation:
Research Assistant, Faculty of Economics and Business, University of Groningen, P.O. Box 800, 9700 AV, Groningen, The Netherlands. E-mails: f.r.gouma@rug.nl.
Get access Rights & Permissions [Opens in a new window]

Abstract

Technology shocks and declining productivity have been advanced as important factors driving the Great Depression in the United States, based on real business cycle theory. We estimate an improved measure of technology for interwar manufacturing, using data from the U.S. census reports. There is clear evidence of increasing returns to scale and we find no statistical proof that technology shocks led to changes in hours worked or other inputs. This contradicts a key prediction of real business cycle theory. We find that increasing returns to scale are not due to market power but to labor and capital hoarding.

Type
ARTICLES
Information
The Journal of Economic History , Volume 71 , Issue 4 , December 2011 , pp. 827 - 858
Copyright
Copyright © The Economic History Association 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Basu, Susanto, and John, G. Fernald. “Returns to Scale in U.S. Production: Estimates and Implications.” Journal of Political Economy 105, no. 2 (1997): 249–83.CrossRefGoogle Scholar
Basu, Susanto, and John, G. Fernald. “Why is Productivity Procyclical? Why Do We Care?” In New Developments in Productivity Analysis, NBER Studies in Income and Wealth 63, edited by Hulten, Charles R., Dean, Edwin R., and Harper, Michael J., 225–96. Chicago: University of Chicago Press, 2001.Google Scholar
Basu, Susanto, and John, G. Fernald. “Aggregate Productivity and Aggregate Technology.” European Economic Review 46, no. 6 (2002): 963–91.Google Scholar
Basu, Susanto, Fernald, John G., and Miles, S. Kimball. “Are Technology Improvements Contractionary?” American Economic Review 96, no. 5 (2006): 1418–48.CrossRefGoogle Scholar
Bernanke, Ben S. “Employment, Hours, and Earnings in the Depression: An Analysis of Eight Manufacturing Industries.” American Economic Review 76, no. 1 (1986): 82–109.Google Scholar
Bernanke, Ben S., and Martin, L. Parkinson. “Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries.” Journal of Political Economy 99, no. 3 (1991): 439–59.CrossRefGoogle Scholar
Bernstein, Michael A. “The Response of American Manufacturing Industries to the Great Depression.” History and Technology 3, no. 3 (1987): 225–48.CrossRefGoogle Scholar
Bresnahan, Timothy F., and Daniel, M. Raff, G.. “Intra-Industry Heterogeneity and the Great Depression: The American Motor Vehicle Industry, 1929–1935.” The Journal of Economic History 51, no. 2 (1991): 317–31.CrossRefGoogle Scholar
Cole, Harold L., and Lee, E. Ohanian. “The Great Depression in the United States from a Neoclassical Perspective.” Federal Reserve Bank Minneapolis Quarterly Review 23, no. 1 (1999): 2–24.Google Scholar
Cole, Harold L., and Lee, E. Ohanian. “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis.” Federal Reserve Bank Minneapolis. Working Paper 597, Minneapolis, 2001.Google Scholar
Cole, Harold L., and Lee, E. Ohanian. “A Second Look at the U.S. Great Depression from a Neoclassical Perspective.” In Great Depressions of the Twentieth Century, edited by Kehoe, Timothy J. and Prescott, Edward C., 21–59. Minneapolis: Federal Reserve Bank of Minneapolis, 2007.Google Scholar
Creamer, Daniel, Dobrovolsky, Sergei and Borenstein, Israel. Capital in Manufacturing and Mining: Its Formation and Financing.Princeton, NJ: Princeton University Press (for NBER), 1960.CrossRefGoogle Scholar
Dewhurst, J. Frederic, et al. America's Needs and Resources: A New Survey. New York: Twentieth Century Fund, 1955.Google Scholar
Eichengreen, Barry. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. New York: Oxford University Press, 1992.Google Scholar
Fano, Ester. “Technical Progress as a Destabilizing Factor and as an Agent of Recovery in the United States Between the Two World Wars.” History and Technology 3, no. 3 (1987): 249–74.Google Scholar
Feldstein, Martin. “Specification of the Labour Input in the Aggregate Production Function.” Review of Economic Studies 34, no. 4 (1967): 375–86.CrossRefGoogle Scholar
Fève, Patrick and Guay, Alain. “Identification of Technology Shock in Structural VARs.” The Economic Journal 120, no. 549 (December 2010): 1284–1318.CrossRefGoogle Scholar
Field, Alexander J. “The Most Technologically Progressive Decade of the Century.” American Economic Review 93, no. 4 (2003): 1399–1413.CrossRefGoogle Scholar
Field, Alexander J. “Technological Change and U.S. Productivity Growth in the Interwar Years.” The Journal of Economic History 66, no. 1 (2006): 203–36.CrossRefGoogle Scholar
Field, Alexander J. “The Procyclical Behavior of Total Factor Productivity in the United States, 1890–2004.” The Journal of Economic History 70, no. 2 (2010): 326–50.CrossRefGoogle Scholar
Firestone, John M. Federal Receipts and Expenditures During Business Cycles, 1879–1958.Princeton, NJ: Princeton University Press (for NBER), 1960.Google Scholar
Francis, Neville, and Valerie, A. Ramey. “The Source of Historical Economic Fluctuations: An Analysis Using Long-Run Restrictions.” In NBER International Seminar of Macroeconomics 2004, edited by Clarida, Richard C., Frankel, Jeffrey A., Giavazzi, Francesco, and West, Kenneth D., 17–49.Cambridge, MA: MIT Press, 2006.Google Scholar
Francis, Neville, and Valerie, A. Ramey. “Measures of Per Capita Hours and Their Implications for the Technology-Hours Debate.” Journal of Money, Credit, and Banking 41, no. 6 (2009): 1071–97.CrossRefGoogle Scholar
Friedman, Milton, and Anna, J. Schwartz. A Monetary History of the United States, 1867–1960.Princeton, NJ: Princeton University Press (for NBER), 1963.Google Scholar
Griliches, Zvi and Mairesse, Jacques. “Production Functions: The Search for Identification.” In Econometrics and Economic Theory in the Twentieth Century, edited by Strom, Steinar, 169–23. Cambridge: Cambridge University Press, 1998.CrossRefGoogle Scholar
Hall, Robert E. “The Relation Between Price and Marginal Cost in U.S. Industry.” Journal of Political Economy 96, no. 5 (1988): 921–47.CrossRefGoogle Scholar
Hall, Robert E. “Invariance Properties of Solow's Productivity Residual.” In Growth, Productivity, Employment: Essays to Celebrate Bob Solow's Birthday, edited by Diamond, Peter A., 71–112.Cambridge, MA: MIT Press, 1990.Google Scholar
Harrison, Sharon G. and Weder, Mark. “Did Sunspot Forces Cause the Great Depression?” Journal of Monetary Economics 53, no. 7 (2006): 1327–39.CrossRefGoogle Scholar
Hart, Robert A., and James, R. Malley. “Procyclical Labour Productivity.” Economica, New Series 66, no. 264 (1999): 533–50.CrossRefGoogle Scholar
Huberman, Michael, and Minns, Chris. “The Times They are Not Changin’: Days and Hours of Work in Old and New Worlds, 1870–2000.” Explorations in Economic History 44, no. 4 (2007): 538–67.Google Scholar
Hultgren, Thor. Changes in Labor Cost During Cycles in Production and Business. Occasional Paper No. 74. New York: NBER, 1960.Google Scholar
Inklaar, Robert. “Cyclical Productivity in Europe and the United States: Evaluating the Evidence on Returns to Scale and Input Utilization.” Economica 74, no. 296 (2007): 822–41.CrossRefGoogle Scholar
Jacoby, Sanford M. Employing Bureaucracy: Managers, Unions, and the Transformation of Work in American Industry, 1900–1945. New York: Columbia University Press, 1985.Google Scholar
de Jong, Herman and Woltjer, Pieter. “Depression Dynamics: A New Estimate of the Anglo-American Manufacturing Productivity Gap in the Interwar Period.” The Economic History Review 63, no. 2 (2011): 472–92.Google Scholar
Jones, Ethel B. “New Estimates of Hours of Work per Week and Hourly Earnings, 1900–1957.” The Review of Economics and Statistics 45, no. 4 (1963): 374–85.Google Scholar
Kehoe, Timothy J., and Prescott, Edward C., eds. Great Depressions of the Twentieth Century. Minneapolis: Federal Reserve Bank of Minneapolis, 2007.CrossRefGoogle Scholar
Kendrick, John. Productivity Trends in the United States.Princeton, NJ: Princeton University Press, 1961.Google Scholar
Kuh, Edwin. “Cyclical and Secular Labor Productivity in United States Manufacturing.” The Review of Economics and Statistics 47, no. 1 (1965): 1–12.CrossRefGoogle Scholar
Kydland, Finn E., and Edward, C. Prescott. “Time to Build and Aggregate Fluctuations.” Econometrica 50, no. 6 (1982): 1345–70.CrossRefGoogle Scholar
Leontief Wassily, W. The Structure of the American Economy, 1919–1939. New York: Oxford University Press, 1953.Google Scholar
Margo, Robert A. “Employment and Unemployment in the 1930s.” The Journal of Economic Perspectives 7, no. 2 (1993): 41–59.CrossRefGoogle Scholar
Ohanian, Lee E. “Why Did Productivity Fall So Much During the Great Depression?” American Economic Review 91, no. 2 (2001): 34–38.CrossRefGoogle Scholar
Ohanian, Lee E. “What—or Who—Started the Great Depression?” Journal of Economic Theory 144, no. 6 (2009): 2310–55.CrossRefGoogle Scholar
Parker, Randall E. The Economics of the Great Depression. Cheltenham, UK: Edward Elgar, 2007.Google Scholar
Petrin, Amil, Kirk White, T., and Reiter, Jerome P.. “The Impact of Plant-Level Resources Reallocations and Technical Progress on U.S. Macroeconomic Growth.” Review of Economic Dynamics 14, no. 1 (2011): 3–26.Google Scholar
Prescott, Edward. “Theory Ahead of Business Cycle Measurement.” Federal Reserve Bank Minneapolis Quarterly Review 10 (1986): 9 22.Google Scholar
Rosenbloom, Joshua L., and William, A. Sundstrom. “The Sources of Regional Variation in the Severity of the Great Depression: Evidence from U.S. Manufacturing, 1919–1937.” The Journal of Economic History 59, no. 3 (1999): 714–47.CrossRefGoogle Scholar
Solow, Robert M. “Technical Change and the Aggregate Production Function.” The Review of Economics and Statistics 39, no. 3 (1957): 312–20.CrossRefGoogle Scholar
Stock, James H. and Yogo, Motohiro. “Testing for Weak Instruments in Linear IV Regression.” In Identification and Inference for Econometric Models: Essays in Honor of Thomas Rothenberg, edited by Andrews, Donald W. K. and Stock, James H., 80–108. Cambridge: Cambridge University Press, 2005.CrossRefGoogle Scholar
Temin, Peter. Did Monetary Forces Cause the Great Depression? New York: W. W. Norton, 1976.Google Scholar
Temin, Peter. “Real Business Cycle Views of the Great Depression and Recent Events: A Review of Timothy J. Kehoe and Edward C. Prescott's Great Depressions of the Twentieth Century.” Journal of Economic Literature 46, no. 3 (2008): 669–84.CrossRefGoogle Scholar
United States Department of Commerce. Biennial Census of Manufactures. Washington DC: GPO, various issues.Google Scholar
United States Department of Labor. Bureau of Labor Statistics. Monthly Labor Review, Vol. 37–51. Washington DC: GPO, 1933–1939.Google Scholar
National Industrial Conference Board. Wages in the United States, 1914–1929. New York: National Industrial Conference Board, 1930.Google Scholar
Woytinksy, W. and Associates. Employment and Wages in the United States. New York: The Twentieth Century Fund, 1953.Google Scholar
Supplementary material: PDF

Inklaar et al. supplementary material

Appendix

Download Inklaar et al. supplementary material(PDF)
PDF 123.4 KB
Supplementary material: File

Inklaar et al. supplementary material

Data tables

Download Inklaar et al. supplementary material(File)
File 90.1 KB