A Behavioral Explanation for Normal Wage Rigidity During the Great Depression

Deflation and Monetary Policy in a Historical Perspective: Remembering the Past or Being Condemned to Repeat It?

“…Indeed, the size of the output decline associated with this episode was generally much larger than comparable deflations during other periods (Graph 2). In addition, more of the contraction of aggregate demand went into output than into prices and nominal wages than in 1919-1921, reflecting in large part the presence of important structural rigidities (Bordo, Erceg and Evans (1997), Hanes and James (2001), O'Brien (1989)). …”

What - or Who - Started the Great Depression?

“…18 18 Kendrick's data shows that real output fell only around 3 percent in the early 1920s, but real consumption and investment actually increased. Thus, the 1921-22 recession largely reflects a decline in government purchases, which partially reflects the postwar Presidents Hoover and Roosevelt shared similar goals of fostering industrial collusion and increasing real wages and raising labor's bargaining power.…”

By our bootstraps: Origins and effects of the high-wage doctrine and the minimum wage

“…It was as if the simultaneous occurrence of wage rate cuts and perhaps the steepest depression yet experienced in U.S. history was perceived as proof that such cuts were the cause of the depression, rather than a cure which helped bring the downturn to an end. Anthony Patrick O'Brien (1989) has shown that, by the mid-1920s, many employers had publicly announced that wage rates would not be reduced during the next downturn because of the view that changes in wage rates lead to corresponding changes in purchasing power.…”