Themes in Macroeconomic History: Unemployment, 1919–38

INTRODUCTION Perhaps the most distinguishing feature of the interwar era was the rise of mass unemployment. Figure 3.1 plots the path of the annual UK unemployment rate during the period 1890–1938. Total unemployment as a percentage of the labour force more than doubled from an average of 4.5 per cent between 1870 and 1913 to nearly 10 per cent between 1920 and 1938 (see appendix to this chapter for a description of the data). The unemployment rate had reached the 10 per cent mark in the past but only over short time periods. There are three important features to note: first, unemployment showed a very marked cyclical pattern during 1918–38, rising rapidly in the severe depressions of 1920–1 and 1929–32 and falling in the recovery periods of 1921–9 and 1932–7. Secondly, figure 3.1 suggests that the severity of the problem was worsening within the interwar years: with each major cyclical depression the unemployment rate rose to ever higher levels. Finally, the level of unemployment displays the phenomenon of hysteresis, whereby the mean rate of unemployment was permanently higher in the interwar years relative to the pre-1914 era. The problem of high and rising unemployment during this period was not limited to the UK economy. However, international comparisons are difficult to make because of national inconsistencies in the definition and measurement of unemployment (Eichengreen and Hatton, 1988). Two important pieces of work that have attempted to grapple with these problems of data comparability are Galenson and Zellner (1957) and Maddison (1964): the Galenson and Zellner data may be regarded as an indicator of the ranking of industrial unemployment levels across a wide range of countries, while Maddison provides comparable aggregate unemployment figures.