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The Causes of Unemployment in Interwar Australia

Author

Listed:
  • Nicholas Dimsdale
  • N. Horsewood
  • University of Birmingham

Abstract

This paper examines the factors contributing to the rise in unemployment in Australia during the depression of the 1930s and to its decline in the subsequent recovery. While previous writers have generally argued that demand side variables were predominant, it has also claimed that excessive real wages created unemployment. The Layard-Nickell model, which has been used to examine the relationship between real wages and unemployment in interwar Britain, is estimated from Australian data. The results of the estimation confirm that demand side variables in the form of changes in government spending and in the terms of trade were important in both the downturn and the recovery. Although real wages affected employment and wage indexation procedures resulted in some real wage rigidity this was not a major contributor to unemployment. In addition wage indexation resulted in a high degree of flexibility of money wages, so that nominal inertia was not a problem This is in contrast to a country, such as the UK, where wages are determined by collective bargaining rather than by formal wage regulation. No evidence was found that the much discussed decision of the Commonwealth Court to reduce real wages by 10% was effective.

Suggested Citation

  • Nicholas Dimsdale & N. Horsewood & University of Birmingham, 2001. "The Causes of Unemployment in Interwar Australia," Economics Series Working Papers 81, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:81
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    References listed on IDEAS

    as
    1. Valentine, T. J., 1987. "The causes of the depression in Australia," Explorations in Economic History, Elsevier, vol. 24(1), pages 43-62, January.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    3. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133.
    4. Manning, Alan, 1993. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," Economic Journal, Royal Economic Society, vol. 103(416), pages 98-118, January.
    5. Benjamin, Daniel K & Kochin, Levis A, 1979. "Searching for an Explanation of Unemployment in Interwar Britain," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 441-478, June.
    6. Beenstock, Michael & Warburton, Peter, 1986. "Wages and unemployment in interwar Britain," Explorations in Economic History, Elsevier, vol. 23(2), pages 153-172, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    unemployment; Great Depression; wage indexation; Australia;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • N17 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Africa; Oceania
    • N37 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - Africa; Oceania

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