The Dynamics of Relief Spending and the Private Urban Labor Market During the New Deal

Abstract

We examine the dynamic relationships between relief spending and local private labor markets using a panel data set of relief, private employment, and private earnings. Positive shocks to relief during the First New Deal were followed by increased private employment and earnings, consistent with demand stimulus in that period. On the other hand, increases in work relief spending during the Second New Deal were followed by decreased employment and increased earnings, consistent with crowding out. The timing of spending is consistent with claims that the Roosevelt administration used relief spending to sway elections.

In Search of the Multiplier for Federal Spending in the States During the Great Depression

“…Most of the coefficient estimates were negative with small elasticities. The results are consistent with the findings by Neumann, Fishback, and Kantor (2010) and using alternative data sets.…”

“…broad-based employment index built up from BLS employer surveys for 1929 through 1939,20 newly computerized payroll indices for 1932 to 1939 for the same group of industries, and per capita auto registrations, to capture the effect of government spending on a major consumer durable. The employment and payroll indices rely very little on interpolation but there may be sampling error in each state because the series are based on month-to-month comparisons of the same employers from surveys that rotate employers out of the sample Neumann, Fishback, and Kantor 2010). used benchmarks to resolve some of these problems for the broad-based employer index, but the payroll indices have not been benchmarked.…”

“…An ample literature on the geographic distribution of New Deal spending shows that the Roosevelt Administration tended to distribute more New Deal grants to areas where income was declining (see Wallis 1998, Fleck 2008, Fishback, Kantor, and Wallis, 2003Neumann, Fishback, and Kantor 2010). This tendency imparts a negative bias to the multiplier coefficient.…”

“…We focus on the studies that use panel data here, seeNeumann, Fishback, and Kantor (2010) for citations to studies relying on cross-sectional estimation.…”

How Successful Was the New Deal? The Microeconomic Impact of New Deal Spending and Lending Policies in the 1930s

“…Work relief stints were meant to be short, but a significant percentage of emergency workers in the 1939 census reported continuous time on relief that carried well beyond 6 months and often to multiple years. Even though WPA officials in many areas encouraged relief workers to accept private employment with promises to allow them to return if the job did not work out, employers in a number of areas found it difficult to offer high enough wages to attract people off of work relief because private employment was considered more unstable (Margo 1991;Howard, 1943;Neumann, Fishback, and Kantor 2010). Darby (1976) raised the issue as to whether relief workers should be treated as employed or unemployed.…”