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Filtering by: Creator Ohanian, Lee E. Subject D50 - General equilibrium and disequilibrium - General

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New Deal policies and the persistence of the Great Depression : a general equilibrium analysis

Creator:

Cole, Harold Linh, 1957- and Ohanian, Lee E.

Series:

Great depressions of the twentieth century

Abstract:

There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate whether New Deal cartelization policies designed to limit competition among firms and increase labor bargaining power can account for the persistence of the Depression. We develop a model of the intraindustry bargaining process between labor and firms that occurred with these policies, and embed that model within a multi-sector dynamic general equilibrium model. We find that New Deal cartelization policies are an important factor in accounting for the post-1933 Depression. We also find that the key depressing element of New Deal policies was not collusion per se, but rather the link between paying high wages and collusion.

Keyword:

New Deal, Great Depression, Competition, Cartels, Wages, and Collective bargaining

Subject:

D50 - General equilibrium and disequilibrium - General and J58 - Labor-management relations, trade unions, and collective bargaining - Public policy