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Wage Theory, New Deal Labor Policy, and the Great Depression: Were Government and Unions to Blame?

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  • Bruce E. Kaufman

Abstract

A growing number of economists blame the length and severity of the Great Depression on factors that rigidified wage rates, raised production costs, and interfered with the market allocation of labor. The target of their critique is President Franklin Roosevelt's New Deal labor program, which they portray as creating a series of large negative supply shocks through encouragement of unions, minimum wages, unemployment insurance, and other anticompetitive industrial relations practices. The author uses a combination of institutiognal and Keynesian theory to present the other side of the story. Drawing principally from the works of J. R. Commons and J. M. Keynes, he develops both a spending and a productivity rationale for stable wages during the Great Depression and demonstrates that the New Deal's interventionist labor program was on balance necessary and beneficial. He also highlights the neglected macro-economic dimension of industrial relations theory and policy.

Suggested Citation

  • Bruce E. Kaufman, 2012. "Wage Theory, New Deal Labor Policy, and the Great Depression: Were Government and Unions to Blame?," ILR Review, Cornell University, ILR School, vol. 65(3), pages 501-532, July.
    • Handle: RePEc:sae:ilrrev:v:65:y:2012:i:3:p:501-532
    DOI: 10.1177/001979391206500302
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    Cited by:

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    2. Michael Quinlan, 2012. "The ‘Pre-Invention’ of Precarious Employment: The Changing World of Work in Context," The Economic and Labour Relations Review, , vol. 23(4), pages 3-24, November.
    3. Greenglass, Esther & Antonides, Gerrit & Christandl, Fabian & Foster, Gigi & Katter, Joana K.Q. & Kaufman, Bruce E. & Lea, Stephen E.G., 2014. "The financial crisis and its effects: Perspectives from economics and psychology," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 50(C), pages 10-12.
    4. Bruce E. Kaufman, 2012. "An Institutional Economic Analysis of Labor Unions," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 51, pages 438-471, April.
    5. Mark Benton, 2021. "Public justifications for the US minimum wage," Industrial Relations Journal, Wiley Blackwell, vol. 52(4), pages 331-347, July.

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