The most famous such study, of the long-term unemployed in New Haven, Connecticut, was conducted by E. Wight Bakke, a graduate student and subsequently a professor of economics at Yale University. Through participant interviews, personal observation, time diaries, and longitudinal studies, Bakke showed how extended spells of unemployment caused workers’ skills to deteriorate and made it difficult for them to acquire new ones. The long-term unemployed also experienced a variety of physical and psychological problems, among them demoralization, apathy, and a sense of social isolation.
For those unfortunate enough to experience it, long-term unemployment – now, as in the 1930’s – is a tragedy. And, for society as a whole, there is the danger that the productive capacity of a significant portion of the labor force will be impaired.
What is not well known, however, is that in the 1930’s, the United States, to a much greater extent than today, succeeded in mitigating these problems. Rather than resorting to extensive layoffs, firms had their employees work a partial week. The average workweek in manufacturing and mining fell from 45 hours in 1929 to 35 hours in 1932. We know this from a 1986 article by my Berkeley colleague James Powell and his co-author, none other than – wait for it – Ben Bernanke.
The 24% unemployment reached at the depths of the Great Depression was no picnic. But that rate would have been even higher had average weekly hours for workers in manufacturing remained at 45. Cutting hours by 20% allowed millions of additional workers to stay on the job. They continued to earn an income. They continued to acquire skills. They had hope and the possibility of advancement.
Why was there so much work-sharing in the 1930’s? One reason is that government pushed for it. In his memoirs, President Herbert Hoover estimated that as many as two million workers avoided unemployment as a result of his efforts to promote work-sharing.Share The Work. Barry Eichengreen, Project Syndicate.
Second, legislation encouraged it. The industrial codes of the New Deal set ceilings on the workweek for specified industries and workers. The Fair Labor Standards Act provided financial incentives by requiring overtime pay for employees working long hours.
Third, there was no unemployment insurance to discourage it. An individual today, faced with the option of working 20 hours a week or drawing unemployment benefits, might be tempted by the latter. But, back in the 1930’s, before unemployment insurance, 20 hours was better than nothing.
Another economist, Mark Thoma, comments:
The unemployment problem ought to be a national emergency. The fact that it's not tells me that our political institutions are broken, at least when it comes to defending the interests of the working class (other interests are anything but ignored). Millions of people are struggling to get by without a job, and instead of mobilizing on their behalf and finding some way to make things better -- there is plenty to do and plenty of people who would be glad to do it -- some policymakers are calling them lazy and trying to make it even worse by cutting what help they do get, while others who ought to know better stand by passively watching this happen, or worse join the cause. We can do better than this, but it has to be a priority for those who control the levers of power. Unfortunately, in our dysfunctional political system, improving the lives of the working class is less a priority than serving the interests of those who finance, and hence hold the keys to, reelection.
How can an economic system function when it ignores the needs of the vast number of people living under it?