Ohanian and His Critics
By Bryan Caplan
1. From Lord:
(1) the Great Depression was the
first recession where wage cuts were rare and work sharing was common
Average manufacturing wages -20%,
coal mining wages -25%, skilled wages -20%. You should be ashamed to mention
There’s nothing to be ashamed of.
Yes, it’s true that wages eventually declined. But Ohanian’s
focusing on the first two years of the Great Depression. Unless his data
is wrong (see his Figure 3), nominal wages were almost perfectly stable for the
first year, and declined only 5% by the end of the second year. In
contrast, he reports, “Nominal earnings of full time manufacturing workers
fell about 19 percent between 1920 and 1922.”
2. From Boonton:
What portion of the labor force was
employed in major industry in 1929? If its a minority how would jawboning by
the President have prevented wage drops when the majority of workers were in
farming or other industries not subject to this verbal cheerleading for high
The contrast between agriculture and
manufacturing is actually a crucial part of Ohanian’s story: “[A]griculture, which accounted for
about the same share of employment as manufacturing in 1929, does not
experience a drop in hours or real output. In fact, hours worked in agriculture
actually rise slightly between 1929 and 1931, increasing by about 1.5 percent.
Real agricultural output rises by about 4 percent over this time period…”
3. Also from Boonton:
And how does this theory square with
the experience of the UK during the 20’s? The UK had returned to the gold
standard but wanted prices to return to the pre-WWI level. As a result they
drove up interest rates and unemployment hoping for wages and prices to fall.
While they did fall somewhat, they would not come down to pre-WWI levels
despite the explicit desire by gov’t officials coupled with harsh monetary
Back in the 70s, Benjamin and Kochin
launched a multi-decade debate by blaming poor British labor market performance on high
unemployment benefits. Most of the subsequent literature says they’re wrong, but their thesis still seems plausible to me.
4. Again from Boonton:
Back then there was no widespread
income reporting to the IRS. There was barely an official unemployment rate.
What exactly prevented industry leaders from promising Hoover they would
“do whatever we can” to hold wages steady and then proceed to cut
This is esp. important if firms were
‘allowed’ to do layoffs but not wage cuts. It’s easy for a firm to lay off the
highly paid workers, keep the low paid one and then brag to Hoover that they
‘stabilized wages’ for their employees. Since Hoover and the Fed. gov’t had
nearly zero data processing ability there would be no way to verify compliance.
Umm, outcry from workers, unions,
5. Sandwichman blames Ohanian for omitting
disconfirming citations on work-sharing:
The study in question examined the
results of a “work-sharing” experiment at Bell Canada that took place
in 1994, not exactly at the start of the Great Depression of the 1930s…
Furthermore, one of the authors, Lanoie, also co-authored another paper, with
Michel Huberman, which put the Bell Canada results in a broader context. Of the
five Canadian work-sharing cases evaluated by Lanoie and Huberman, only the
Bell Canada one had a negative effect on productivity. Two resulted in no
change, one had mixed results, and the fifth case study resulted in
If this is an accurate summary of
the literature, Ohanian ought to be more careful. But this is from a
throwaway remark in a footnote. It’s hardly central to his thesis, is it?
With a little luck, perhaps I can get some additional feedback from
Ohanian. Stay tuned.
Update: See Sandwichman’s reply in the comments. He makes a fair point.