, Volume 12, Issue 1, pp 127–152 | Cite as

Hysteresis and persistent long-term unemployment: the American Beveridge Curve of the Great Depression and World War II

  • Gabriel P. MathyEmail author
Original Paper


Long-term unemployment plagued the American economy of the Great Depression. The stigma of a long unemployment spell made reentering employment difficult even during the brisk economic recovery, which lead to unemployment hysteresis and persistently high joblessness. Unemployment figures disaggregated by duration confirm the importance of hysteresis for the Great Depression, as the long-term unemployed were less likely to return to gainful employment until the war. Using the theoretical framework of the Beveridge Curve, I find that hysteresis was a significant problem during the 1930s, but that the essentially unlimited labor demand during the World War II provided jobs even to the long-term unemployed. As a result, labor market conditions in the 1950s resembled those of the 1920s prior to the Depression and so the labor market scars of the Great Depression were healed.


Unemployment Great Depression Beveridge Curve Hysteresis 

JEL Classification

N12 J60 E32 



The support of the Institute for New Economic Thinking and the ALL-UC Economic History Association is much appreciated. Many thanks go to Eric DeLisle for his invaluable assistance in the Social Security Administration Archives and to Diego Garcia and John Escobar for their research assistance.


  1. Abraham KG, Wachter M (1987) Help-wanted advertising, job vacancies, and unemployment. Brook Pap Econ Act 1:207–248CrossRefGoogle Scholar
  2. Acemoglu D (1995) Public policy in a model of long-term unemployment. Economica 62(246):161–178CrossRefGoogle Scholar
  3. AFL (1936) The federation’s revised unemployment estimate. In: William G (ed) American Federationist vol 43. American Federation of Labor, Washington, DCGoogle Scholar
  4. Ahn HJ, Hamilton JD (2014) Heterogeneity and unemployment dynamics. University of California, San Diego Working PaperGoogle Scholar
  5. Arulampalam W, Gregg P, Gregory M (2001) Unemployment scarring. Econ J 111(475):577–584CrossRefGoogle Scholar
  6. Bakke EW (1933) The unemployed man. E. P. Dutton & Co, BostonGoogle Scholar
  7. Baldwin R (1988) Hysteresis in import prices: the Beachhead effect. Am Econ Rev 78(4):773–785Google Scholar
  8. Ball LM (2009) Hysteresis in unemployment: old and new evidence. NBER Working Paper (14818)Google Scholar
  9. Ball LM, Gregory MN (2002) The NAIRU in theory and practice. J Econ Perspect 16(4):115–136CrossRefGoogle Scholar
  10. Ball L, Gregory Mankiw N, Nordhaus WD (1999) Aggregate demand and long-run unemployment. Brook Pap Econ Act 1999(2):189–251CrossRefGoogle Scholar
  11. Barnichon R (2010) Building a composite help-wanted index. Econ Lett 109(3):175–178CrossRefGoogle Scholar
  12. Barnichon R, Elsby M, Hobijn B, Sahin A (2012) Which industries are shifting the beveridge curve. Monthly Lab Rev 135:25Google Scholar
  13. Benjamin DK, Kochin LA (1979) Searching for an explanation of unemployment in interwar Britain. J Polit Econ 87(3):441–478CrossRefGoogle Scholar
  14. Beveridge WH (1944) Full employment in a free society. George Allen And Unwin Ltd, LondonGoogle Scholar
  15. Biewen M, Steffes S (2010) Unemployment persistence: is there evidence for stigma effects? Econ Lett 106(3):188–190CrossRefGoogle Scholar
  16. Blanchard OJ, Summers LH (1986) Hysteresis and the European unemployment problem. NBER macroeconomics annual 1986, vol 1. MIT Press, Cambridge, pp 15–90Google Scholar
  17. Blanchard OJ, Summers LH (1987) Hysteresis in unemployment. Eur Econ Rev 31(1):288–295CrossRefGoogle Scholar
  18. Blanchard OJ, Diamond PA (1990) The beveridge curve. NBER working paper, (R1405)Google Scholar
  19. Blanchard OJ, Diamond PA (1994) Ranking, unemployment duration, and wages. Rev Econ Stud 61(3):417–434CrossRefGoogle Scholar
  20. Blanchard O, Katz LF (1997) What we know and do not know about the natural rate of unemployment. J Econ Perspect 11(1):51–72CrossRefGoogle Scholar
  21. Blanchard OJ, Wolfers J (2000) The role of shocks and institutions in the rise of European unemployment: the aggregate evidence. Econ J 110(462):1–33CrossRefGoogle Scholar
  22. Bordo MD, Erceg CJ, Evans CL (2000) Money, sticky wages, and the great depression. Am Econ Rev 90(5):1447–1463CrossRefGoogle Scholar
  23. Cassidy J (2010) Interview with John Cochrane. The New Yorker.
  24. Clague E (1935) The problem of unemployment and the changing structure of industry. J Am Stat Assoc 30(189):209–214CrossRefGoogle Scholar
  25. Cole HL, Ohanian LE (1999) The great depression in the united states from a neoclassical perspective. Fed Reserve Bank Minneap Q Rev 23:2–24Google Scholar
  26. Congress United States (May 12 1944a) First report of the house special committee on post-war economic policy and planningGoogle Scholar
  27. Congress United States (August 14 1944b) third report of the house special committee on post-war economic policy and planningGoogle Scholar
  28. Crafts NF (1989) Long-term unemployment and the wage equation in Britain, 1925–1939. Economica 56(222):247–254CrossRefGoogle Scholar
  29. Cross R (1993) On the foundations of hysteresis in economic systems. Econ Philos 9(01):53–74CrossRefGoogle Scholar
  30. Daly MC, Hobijn B, Şahin A, Valletta RG (2012) A search and matching approach to labor markets: did the natural rate of unemployment rise? J Econ Perspect 26(3):3–26CrossRefGoogle Scholar
  31. Darby MR (1976) Three-and-a-half million U.S. employees have been mislaid: or, an explanation of unemployment, 1934–1941. J Polit Econ 84(1):1–16CrossRefGoogle Scholar
  32. Diamond PA, Şahin A (2015) Shifts in the Beveridge curve. Res Econ 69(1):18–25CrossRefGoogle Scholar
  33. Director, War Mobilization and Reconversion (October 1946a) Eighth report to the president, the senate, and the house of representativesGoogle Scholar
  34. Director, War Mobilization and Reconversion (April 1946b) Sixth report to the president, the senate, and the house of representativesGoogle Scholar
  35. Dixit A (1989) Hysteresis, import penetration, and exchange rate pass-through. Q J Econ 104(2):205–228CrossRefGoogle Scholar
  36. Dixit A (1992) Investment and hysteresis. J Econ Perspect 6(1):107–132CrossRefGoogle Scholar
  37. Doppelt R (2014) The hazards of unemployment. New York university working paperGoogle Scholar
  38. Dow JCR, Dicks-Mireaux LA (1958) The excess demand for labour. A study of conditions in Great Britain, 1946–56. Oxford Econ Pap 10(1):1–33Google Scholar
  39. Dynarski M, Sheffrin SM (1990) The behavior of unemployment durations over the cycle. Rev Econ Stat 72(2):350–356CrossRefGoogle Scholar
  40. Elsby MWL, Hobijn B, Şahin A (2010) The labor market in the great recession. Brookings papers on economic activity, Economic studies program, The Brookings Institution, vol 41(1(Spring)), pp 1–69Google Scholar
  41. Entorf H (1994) Overtime work, lack of labour, and structural mismatch: some extensions of the european unemployment programme framework. Output and employment fluctuations. Springer, Berlin, pp 131–156CrossRefGoogle Scholar
  42. Eriksson S, Rooth DO (2014) Do employers use unemployment as a sorting criterion when hiring? Evidence from a field experiment. Am Econ Rev 104(3):1014–1039CrossRefGoogle Scholar
  43. Faberman J, Kudlyak M (2014) The intensity of job search and search duration. Technical Report, Federal Reserve Bank of RichmondGoogle Scholar
  44. Farber HS (2011) Job loss in the great recession: historical perspective from the displaced workers survey, 1984–2010. Technical Report, National Bureau of Economic ResearchGoogle Scholar
  45. Farber HS, Valletta RG (2015) Do extended unemployment benefits lengthen unemployment spells? Evidence from recent cycles in the US labor market. J Hum Resour 50(4):873–909CrossRefGoogle Scholar
  46. Feinberg RM (1992) Hysteresis and export targeting. Int J Ind Organ 10(4):679–684CrossRefGoogle Scholar
  47. Franz W (1990) Hysteresis in economic relationships: an overview. Springer, BerlinGoogle Scholar
  48. Friedman M (1968) The role of monetary policy. Am Econ Rev 48(1):1–17Google Scholar
  49. Ghayad R (2013a) A decomposition of shifts of the Beveridge curve. Federal Reserve Bank of Boston Working PaperGoogle Scholar
  50. Ghayad R (2013b) The jobless trap. Technical Report, Northeastern Working PaperGoogle Scholar
  51. Gibbons R, Katz LF (1991) Layoffs and lemons. J Labor Econ 9(4):351–380CrossRefGoogle Scholar
  52. Gordon RJ (1989) Hysteresis in history: was there ever a Phillips curve? Am Econ Rev 79(2):220–225Google Scholar
  53. Gordon RJ, Schultze CL (1988) Back to the future: European unemployment today viewed from America in 1939. Brook Pap Econ Act 1988(1):271–312CrossRefGoogle Scholar
  54. Gordon RJ, Krenn R (2010) The end of the Great Depression 1939–41: policy contributions and fiscal multipliers. Technical Report, National Bureau of Economic ResearchGoogle Scholar
  55. Gregory JN (1991) American exodus: the dust bowl migration and Okie culture in California. Oxford University Press, OxfordGoogle Scholar
  56. Hagedorn M, Karahan F, Manovskii I, Mitman K (2013) Unemployment benefits and unemployment in the great recession: the role of macro effects. Technical Report, National Bureau of Economic ResearchGoogle Scholar
  57. Hansen AH (1939) Economic progress and declining population growth. Am Econ Rev 29(1):1–15Google Scholar
  58. Heckman JJ (1991) Identifying the hand of past: distinguishing state dependence from heterogeneity. Am Econ Rev 81(2):75–79Google Scholar
  59. Isaac AG (1994) Hysteresis. In: Arestis P, Sawyer MC (eds) The Elgar companion to radical political economy. Edward Elgar, LondonGoogle Scholar
  60. Jackman R, Layard R (1991) Does long-term unemployment reduce a person’s chance of a job? A time-series test. Economica 58(229):93–106CrossRefGoogle Scholar
  61. Jackman R, Savouri S (1999) Mismatch: a framework for thought. Tackling unemployment. Springer, Berlin, pp 141–200CrossRefGoogle Scholar
  62. Jackman R, Pissarides C, Savouri S, Kapteyn A, Lambert J-P (1990) Labour market policies and unemployment in the OECD. Econ Policy 5(11):449–490CrossRefGoogle Scholar
  63. Jarosch G, Pilossoph L (2015) Statistical discrimination and duration dependence in the job finding rateGoogle Scholar
  64. Jensen RJ (1989) The causes and cures of unemployment in the Great Depression. J Interdisc Hist 19(4):553–583CrossRefGoogle Scholar
  65. Katz LF, Meyer BD (1990) The impact of the potential duration of unemployment benefits on the duration of unemployment. J Public Econ 41(1):45–72CrossRefGoogle Scholar
  66. Kendrick JW (1961) Productivity trends in the United States. Productivity trends in the United StatesGoogle Scholar
  67. Kocherlakota N (2010) Inside the FOMC. Speech at Marquette, MichiganGoogle Scholar
  68. Kroft K, Lange F, Notowidigdo MJ (2013) Duration dependence and labor market conditions: evidence from a field experiment*. Q J Econ 128(3):1123–1167CrossRefGoogle Scholar
  69. Layard R, Nickell S, Jackman R (2005) Unemployment: macroeconomic performance and the labour market. OUP CatalogueGoogle Scholar
  70. Lebergott S (1964) Manpower in economic growth: the American record since 1800. McGraw-Hill, New YorkGoogle Scholar
  71. Lindbeck A, Snower DJ (1988) The insider-outsider theory of employment. Unemployment, CambridgeGoogle Scholar
  72. Ljungqvist L, Sargent TJ (1998) The European unemployment dilemma. J Political Econ 106(3):514–550CrossRefGoogle Scholar
  73. Lonigan E (1939) The effect of modern technological conditions upon the employment of labor. Am Econ Rev 29(2):246–259Google Scholar
  74. Machin S, Manning A (1999) The causes and consequences of longterm unemployment in Europe. Handb Labor Econ 3:3085–3139CrossRefGoogle Scholar
  75. Margo RA (1991) The microeconomics of depression unemployment. J Econ Hist 51(02):333–341CrossRefGoogle Scholar
  76. Mathy G (2016) A monthly unemployment rate series for American states: 1930–1975Google Scholar
  77. Nakamura E (2008) Layoffs and lemons over the business cycle. Econ Lett 99(1):55–58CrossRefGoogle Scholar
  78. National Industrial Conference Board (1940) Employment and unemployment of the labor force 1900–1940. vol 2, No. 8, pp 89–92Google Scholar
  79. Nickell S (1997) Unemployment and labor market rigidities: Europe versus North America. J Econ Perspect 11(3):55–74CrossRefGoogle Scholar
  80. Nickell S, Layard R (1999) Labor market institutions and economic performance. Handb Labor Econ 3:3029–3084CrossRefGoogle Scholar
  81. Nickell S, Nunziata L, Ochel W, Quintini G (2003) The Beveridge Curve, unemployment and wages in the OECD from the 1960s to the 1990s. Princeton University Press, PrincetonGoogle Scholar
  82. Nixon RA, Samuelson PA (1940) Estimates of unemployment in the United States. Rev Econ Stat 22(3):101–111CrossRefGoogle Scholar
  83. Oberholzer-Gee F (2008) Nonemployment stigma as rational herding: a field experiment. J Econ Behav Organ 65(1):30–40CrossRefGoogle Scholar
  84. Olson KW (1973) The GI Bill and higher education: success and surprise. Am Q 25(5):596–610CrossRefGoogle Scholar
  85. Palmer GL (1937)Recent trends in employment and unemployment in Philadelphia. Works Progress Administration, National Research Project on Reemployment Opportunities and Recent Changes in Industrial TechniquesGoogle Scholar
  86. Palmer GL (1938) Employment and unemployment in Philadelphia 1936 and 1937. Works Progress Administration, National Research Project on Reemployment Opportunities and Recent Changes in Industrial TechniquesGoogle Scholar
  87. Petrongolo B, Pissarides CA (2001) Looking into the black box: a survey of the matching function. J Econ Lit 39(2):390–431CrossRefGoogle Scholar
  88. Phelps ES (1967) Phillips curves, expectations of inflation and optimal unemployment over time. Economica 34(135):254–281CrossRefGoogle Scholar
  89. Phelps ES (1968) Money-wage dynamics and labor-market equilibrium. J Polit Econ 76(4 Part 2):678–711CrossRefGoogle Scholar
  90. Phelps ES (1994) Structural slumps: the modern equilibrium theory of unemployment, interest, and assets. Harvard University Press, CambridgeGoogle Scholar
  91. Pissarides CA (1992) Loss of skill during unemployment and the persistence of employment shocks. Q J Econ 107(4):1371–1391CrossRefGoogle Scholar
  92. Pissarides CA (2000) Equilibrium unemployment theory. MIT Press, CambridgeGoogle Scholar
  93. Price DN (1985) Unemployment insurance, then and now, 1935–85. Soc Secur Bull 48(10):23Google Scholar
  94. Rogers CL (1997) Job search and unemployment duration: Implications for the spatial mismatch hypothesis. J Urban Econ 42(1):109–132CrossRefGoogle Scholar
  95. Romer C (1986) Spurious volatility in historical unemployment data. J Polit Econ 94(1):1–37CrossRefGoogle Scholar
  96. Roosevelt FD (1936) Correspondence to Mr. Carl ByoirGoogle Scholar
  97. Sahin A, Song J, Topa G, Violante GL (2014) Mismatch unemployment. Am Econ Rev 104(11):3529–64CrossRefGoogle Scholar
  98. Shimer R (2007) Mismatch. Am Econ Rev 97(4):1074–1101CrossRefGoogle Scholar
  99. Standing G (1983) Notion of structural unemployment. Int Lab Rev 122:137Google Scholar
  100. Summers LH (2014) US economic prospects: secular stagnation, hysteresis, and the zero lower bound. Bus Econ 49(2):65–73CrossRefGoogle Scholar
  101. Van den Berg GJ, Van Ours JC (1996) Unemployment dynamics and duration dependence. J Labor Econ 14(1):100–125CrossRefGoogle Scholar
  102. Vishwanath T (1989) Job search, stigma effect, and escape rate from unemployment. J Labor Econ 7(4):487–502CrossRefGoogle Scholar
  103. Wallis JJ (1989) Employment in the Great Depression: new data and hypotheses. Explor Econ Hist 26(1):45–72CrossRefGoogle Scholar
  104. Weir DR (1992) A century of us unemployment, 1890–1990: revised estimates and evidence for stabilization. Res Econ Hist 14(1):301–46Google Scholar
  105. Winslow HJ (1938) The effect of a shortened waiting period on unemployment benefit costs. Soc Secur Bull 2(1):20Google Scholar
  106. Woirol GR (1996) The technological unemployment and structural unemployment debates, number 173, Greenwood Publishing GroupGoogle Scholar
  107. Woytinsky WS (1940) Additional workers and the volume of unemployment in the depression. Committee on social security, Social science research council, Washington, DCGoogle Scholar
  108. Woytinsky WS (1942) Three aspects of labor dynamics: a report prepared for the committee on social security. Committee on social security, Social science research council, WashingtonGoogle Scholar
  109. Woytinsky WS (1947) What was wrong in forecasts of postwar depression? J Polit Econ 55(2):142–151CrossRefGoogle Scholar
  110. WPA (1947) Final report on progress of the WPA programGoogle Scholar
  111. Wright JH (2013) Unseasonal seasonals? Brook Pap Econ Act 2013(2):65–126CrossRefGoogle Scholar
  112. Zagorsky JL (1998) Job vacancies in the United States: 1923 to 1994. Rev Econ Stat 80(2):338–345CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2017

Authors and Affiliations

  1. 1.American UniversityWashingtonUSA

Personalised recommendations