Unemployment During The Great Depression

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Unemployment during the great depression

April 1, 2020 by Tejvan Pettinger
During the Great Depression, US unemployment rate rose from virtually 0% in 1929
to a peak of 25.6% in May 1933. This was the equivalent of 15 million people
unemployed. Though this unemployment rate also excluded those on reduced hours
or migrants/women not eligible to o cially sign on for bene ts. The unemployment
caused serious economic hardship as welfare support for the unemployed was very
limited.
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https://www.economicshelp.org/blog/162985/economics/unemployment-during-the-great-depression/ 1/12
The unemployment rate remained in double gures until America’s entry in the
Second World War in 1941.
Unemployment and economic growth rate US
Unemployment Economic
Year
Rate % growth rate
1929 3.2%
1930 8.7% -8.5%
1931 15.9% -6.4%
1932 23.6% -12.9%
1933 24.9% -1.2%
1934 21.7% 10.8%
1935 20.1% 8.9%
Our1936 16.9%
site uses cookies so that 12.9% how you use our site and serve you relevant adverts an
we can remember you, understand
1937 14.3% 5.1%
1938 19.0% -3.3%
1939 17.2% 8.0%
1940 14.6% 8.8%
1941 9.9% 17.7%
1942 4.7% 18.9%
Global unemployment rates
During the Great Depression, most countries around the world experienced a rise in
unemployment. The rise in unemployment was particularly marked in countries
which were reliant on international trade, such as Chile, Australia and Canada
(producers of raw materials). Countries which were relatively isolated and self-
su cient often avoided the worst costs of the great depression. Countries, such as
Soviet Union, Spain and Japan.
In the US, the worst of the great depression ended in 1933, and unemployment rates
started to fall. However, the rate of unemployment remained high in the US, and a
second “double-dip” recession in 1936 caused it to increase again.
Why did unemployment rise so much in the great depression?
In essence, with demand for goods falling, many rms went out of business and so
made their workforce redundant. Other rms had to cut costs so hired fewer
workers. The unemployment was nearly all demand-de cient (or cyclical
unemployment.)
1. People who lost money on the Wall Street Crash (1929) started to spend less.
Banks lost money from loan defaults and therefore were reluctant to lend money for
investment. This started a fall in consumer spending and investment, leading to lower
aggregate demand in the economy. With rms seeing a fall in spending, they cut back
on output and employed fewer workers. This was particularly noticeable for luxury
goods like motor cars.
2. Negative multiplier e ect. The initial e ect of the Wall Street Crash was fairly
limited – most Americans did not have shares so were una ected by a fall in share
prices. But, ordinary people were a ected by knock-on e ects. With less demand for
luxury goods, some manufacturing workers lost their jobs, so they had less money to
spend.
3. Fall in money supply and de ation. The great depression began with the shock
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sumspolicy
and went bankrupt. Banks
started to see loan defaults and there concerns banks were running out of money.
This led to well-publicised ‘bank runs’ with queues of people wanting to withdraw
money. Many medium-sized banks went bankrupt leading to people losing their
savings. This led to a fall in the money supply and de ation (falling prices). People
hoarded cash in their homes.
The fall in the money supply is quite noticeable. Falling money supply led to an
in ation rate of -9.3% in 1931 and -10.3% in 1932. When prices are falling this rapidly,
it has negative e ects.
Consumers delay spending because they think goods will be cheaper in the
future.
The real value of debt increases. With falling prices and falling wages, the real
value of debt increases. Consumers and rms with debt were facing higher
debt repayments causing a fall in spending.
The serious de ation led to a further fall in consumer spending, a further fall in
output and more workers are laid o .
4. Agricultural recession. As well as jobs being lost in manufacturing and the service
sector, the US agriculture was going through a prolonged downturn. A global glut in
supply led to lower prices and farming often became uneconomical, jobs were lost in
rural areas – leading to a large migrant workforce seeking employment in places like
California.
5. Trade war. In response
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Tari , which placed tari s on 20,000 imported goods. However, this led to retaliation
as other countries put tari s on US exports. Therefore, there was a further decline in
trade and new job losses. Some jobs were perhaps ‘protected’ by tari s, but many
more were lost because of higher export tari s.
6. Wrong policies. In 1930, the US Federal Reserve temporarily raised interest rates
to try and protect the value of the dollar in the gold standard. This was a counter-
intuitive policy but highlights a problem of Gold standard and trying to protect value
of the currency – rather than provide monetary stimulus.
Although nominal interest rates did fall overall from 1929 to 1933 – because of
de ation, the real interest rate rose from 7% in 1929 to 15.9% in 1932. (1) Also,
governments were reluctant to pursue expansionary scal policy but were more
concerned at trying to limit the budget de cit. FDR did implement a New Deal from
1932, which included some government-backed investment schemes. This helped to
reduce unemployment a little, but compared to the scale of the problem, the New
Deal was fairly limited.
UK unemployment during the great depression
UK unemployment reached a peak of 23% in 1932. Unlike the US, UK unemployment

was high – before the great depression. The UK economy was depressed throughout
the 1920s due to the Gold Standard, de ation, industrial decline and tight scal policy.
Select other countries
Germany – an unemployment rate of 30% in 1932 (or ve and half million)

France – unemployment rate peaked at 5% in 1932 – France never had high
unemployment because since the First World War they had a prolonged
shortage of manpower, plus the depression did not hit France so hard.
New Zealand – rate of 15% (though uno cial measures suggest nearly double)
Soviet Union – claimed 0% unemployment. Soviet model of Communism more
insulated from global capitalism.
Which countries were the most successful at reducing unemployment

during the Great Depression?
Germany. The mass unemployment in Germany was a major factor in Hitler and the
Nazi party gaining power in 1933. On coming to power, Hitler began a policy of
rearmament, conscription and building infrastructure, such as autobahns. From an
economic perspective, this interventionist policy led to unemployment falling rapidly
from 1933 to virtually 0% in 1939.
Japan. Japan’s Finance Minister Takahashi Korekiyo brought Japan out of gold
standard in 1931 (devaluing currency) and ran Keynesian budget de cits, this helped
the Japanese economy recover much quicker than the US. In the late 1930s, Japanese
nationalists aggressively invested in heavy industry and armaments, causing Japanese
industrial output to double in the 1930s.
The Soviet Union. The Soviet Union economy was largely independent of global
trade. In the 1930s, Stalin’s ve-year plans were successful in increasing industrial
output signi cantly.
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1 thought on “Unemployment during the great depression”
Karthik
April 1, 2020 at 5:43 pm
Kindly clarify my doubt: How will an increase in indirect taxes reduce a

consumer’s total utility? I know that supply decreases and demand contracts,
pushing up the price and reducing the quantity traded, but I’m failing to
understand as to how this will result in a decrease in total utility.
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Unemployment and economic growth rate US

1930 8.7% -8.5%

1931 15.9% -6.4%

1932 23.6% -12.9%

1933 24.9% -1.2%

1934 21.7% 10.8%

1935 20.1% 8.9%

1938 19.0% -3.3%

1939 17.2% 8.0%

1940 14.6% 8.8%

1941 9.9% 17.7%

1942 4.7% 18.9%

Global unemployment rates

Why did unemployment rise so much in the great depression?

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protect domestic industries. For example

UK unemployment during the great depression

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UK unemployment reached a peak of 23% in 1932. Unlike the US, UK unemployment

Select other countries

Germany – an unemployment rate of 30% in 1932 (or ve and half million)

Which countries were the most successful at reducing unemployment

Great Recession v Great Depression of 1930s

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 How the covid virus turned economics upside down

1 thought on “Unemployment during the great depression”

Kindly clarify my doubt: How will an increase in indirect taxes reduce a

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View: all Revision Guides

A-Level revision guide £7.95 AS-Level Revision guide £4.00

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Unemployment during the great depression

Books by Tejvan Pettinger

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Causes of Wall Street Crash 1929

Random Glossary term

Debt Service Ratios

You are welcome to ask any questions on Economics.

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