Work‐sharing During the Great Depression: Did the ‘President's Reemployment Agreement’ Promote Reemployment?

Abstract

The President's Reemployment Agreement (PRA) of 1933 directed firms to reduce workweeks during the Great Depression so existing jobs could be spread into additional employment opportunities. Similar ‘work‐sharing’ policies have recently been implemented across Europe in hopes of reducing unemployment. I find that, ceteris paribus, the work‐sharing aspects of the PRA created nearly 2.5 million new employment opportunities in around four months. However, the programme also required firms to raise hourly wage rates, offsetting close to half of these gains. Furthermore, most of the remaining employment gains were wiped out after cartel‐oriented industry‐specific codes of fair competition supplanted the PRA.

“Friday off”: Reducing Working Hours in Europe

“…A first empirical observation that should cause some caution with these theoretical findings is that the transition from 48 to 40 hours was not accompanied by such dramatic losses of output or employment. If anything, the opposite was the case [15], although this might have also to do with the massive increases in debt and the lack of austerity rather than working hours per se. There are, however, other possible explanations on why reduced working hours may not impact productivity negatively as predicted by over-simplified models.…”

“…(Sometimes putting workers on -furloughs‖ relieves temporary crises for firms.) Whereas the employment benefits of work-sharing are under debate [15,17] (see Section 4), there is no evidence to suggest that work-sharing delays the recovery from a recession. Figure 2 shows that Americans work today almost as much as they worked in the 1930s [18], when they were leaders in reducing working hours (note: due to inconsistent data collection techniques across countries, these trend lines should not be compared in terms of levels).…”

“…An analysis of the employment effects of work-sharing during the Great Depression shows some empirical support for Walker's thesis: there were employment gains, but smaller than anticipated by government, especially in the long-term. Taylor [15] finds that work-hour reduction during the Great Depression put 2.7 million back to work but in the long-term the potential employment gains were offset by an increase in the wage rate. His conclusion: ‗Work-sharing, through mandated shorter workweeks, can be an effective short-run tool in combating major episodes of cyclical unemployment'.…”

“…It was in 1933, during the Great Depression that President Roosevelt introduced a massive program of work-sharing in the US [15] and then in 1936 that he instituted the 40-hour workweek that gradually became the norm for the rest of the developed world [12]. It was also during recessions that the governments of Chile or Brazil in the 1990s introduced statutory reductions in working hours [12].…”

What Was New About the New Deal?

“…An industry-fixed effects analysis of monthly data by industry from 1927 through 1937 shows that hourly wage rates were substantially higher and employment somewhat higher when the labor-oriented PRAs were in place, but hourly wages were only slightly higher and total employment lower during the periods covered by NRA codes. These benefits were offset by weekly hours worked that were low enough that weekly wages were lower (Taylor, 2011).…”