Hysteresis and persistent long-term unemployment: the American Beveridge Curve of the Great Depression and World War II

Long-term unemployment plagued the American economy of the Great Depression. The stigma of a long unemployment spell made reentering employment difficult even during the brisk economic recovery, which lead to unemployment hysteresis and persistently high joblessness. Unemployment figures disaggregated by duration confirm the importance of hysteresis for the Great Depression, as the long-term unemployed were less likely to return to gainful employment until the war. Using the theoretical framework of the Beveridge Curve, I find that hysteresis was a significant problem during the 1930s, but that the essentially unlimited labor demand during the World War II provided jobs even to the long-term unemployed. As a result, labor market conditions in the 1950s resembled those of the 1920s prior to the Depression and so the labor market scars of the Great Depression were healed.