by Gertrude Schaffner Goldberg
Job Creation in the Great Depression
President Franklin D. Roosevelt (FDR) and Harry Hopkins, the gifted social worker who administered government relief programs during the Great Depression of the 1930s, preferred to provide work rather than welfare to able-bodied, unemployed persons. FDR disliked what he called “the dole” (welfare assistance); he held that continued dependence on relief “induces a spiritual and moral disintegration” (Roosevelt, 1935, para. 24). Thus, in proposing a massive government employment program in 1935, Roosevelt sought to “preserve not only the bodies of the unemployed from destitution but also their self-respect, their self-reliance and courage and determination” (Roosevelt, 1935, para. 29). This program was the Works Progress Administration (WPA), in which the federal government hired unemployed workers to build roads, bridges, airports, libraries, schools, parks, playgrounds and athletic fields; to make clothing and household goods for use by the needy; to record oral histories such as those of former slaves; to produce plays and concerts in remote areas of the country; and to create works of art such as murals, posters, and paintings.
The WPA was the largest and longest lasting of the New Deal work programs, but not the most innovative. This distinction belonged to the Civil Works Administration (CWA), an emergency measure created to provide work to millions of Americans during the severe winter of 1933–34. The CWA broke with tradition in several ways. It provided half of its jobs, not on the traditional basis of an income or a means test to determine whether an applicant was poor, but on unemployment alone. Further innovative was CWA’s wage policy; instead of being equal to or somewhat lower than relief benefits, CWA pay was often higher than employers in certain regions or industries were accustomed to paying (Harvey, 2013; Schwartz, 1984).
Conceived by Harry Hopkins and his dynamic assistant Aubrey Williams, also a social worker, the CWA was the first of the New Deal programs to challenge the age-old belief that the unemployed were responsible for their condition (Harvey, 2012). It was a challenge carried forward into the WPA by Hopkins and Williams. Embodied in Title III of the Social Security Act of 1935, unemployment compensation was a policy that, in effect, acknowledged that the risk of involuntary unemployment is inherent in industrial labor markets and that insurance against such a hazard is a right rather than a matter of charity.
Although path-breaking in important respects, the New Deal work programs were flawed by racism and sexism as well as low wages. African Americans were believed to be accustomed to low wages and were required to accept lower-paying jobs than whites; they were classified as unskilled labor no matter what their skill levels (Rose, 2009). Because it was administered locally, finding WPA jobs for African Americans was hard, particularly in the South, but, “despite these hurdles, WPA made a major breakthrough in providing work opportunities for blacks in the North and at least opened the door in the South” (Bernstein, 1985, p. 134). While women were one-fourth of the labor force, only one-sixth of WPA jobs went to women (Rose, 2009). When women did get a slot in a work program, they were paid lower average wages than white men (Kessler-Harris, 1982).
As ambitious as work programs were, they employed on average between onequarter and one-third of the unemployed (Burns & Williams, 1941). According to New Deal historian William Leuchtenburg, “by any standard . . . [the WPA] was an impressive achievement, [but] it never came close to meeting Roosevelt’s goal of giving jobs to all who could work” (1963, p. 130). Consequently, the New Deal did not reduce unemployment below 14.6 percent until 1941, when it dipped slightly under 10 percent (still very high and comparable to the highest unemployment rate during the Great Recession) as a result of war production (for rates, Vangiezen & Schwenk, 2001; for war production, Ginsburg, 1983). Unemployment was high, though below peak levels in 1937 when the administration, motivated by a fear of inflation and deficit spending, made substantial cuts in federal expenditures. As a result, unemployment surged from 14 percent to 19 percent in the following year in what was called “the depression within the depression” (Ginsburg, 1983; Leuchtenburg, 1963). This is a grim reminder of what cutting expenditures can do during a severe recession or during a fragile recovery from such a downturn.
According to New Deal Labor Secretary Frances Perkins, who headed the committee that planned the Social Security Act, Roosevelt and Hopkins “had the idea of a permanent work-related program” (Perkins, 1946, pp. 188–189; see also Goldberg & Collins, 2001, pp. 58–61). Nonetheless, the only aid to the unemployed that found its way into permanent legislation was short-term unemployment compensation. This was the case even though Roosevelt’s advisors, including Hopkins, believed that for years to come the economy would not be able to absorb all of the unemployed. Temporary and insufficient though they were, the work programs, in addition to employing millions of jobless people, left a permanent legacy for the nation’s physical, social, and cultural resources—roads, bridges, schools, libraries, housing, parks, arts, cultural facilities, and much more.
Unexpectedly, massive government spending for World War II solved the problem of mass unemployment because the fear of deficit spending then gave way to the need to defend the nation against a foreign enemy. In the war years, unemployment fell to unprecedented depths, and the country enjoyed virtual full employment: 1.9 percent in 1943 and 1945 and 1.2 percent in 1944 (Ginsburg, 1983, table 1-1, p. 9). Instead of making peacetime products, millions of men and women were employed, either in the armed forces or in civilian industries serving the war effort. As economist Robert Lekachman observed, “It was World War II . . . that finally convinced the universe of the validity of Keynes’ emphasis upon the symbiosis between employment and total spending” (1966, p. 259). Lekachman was referring to the great British economist John Maynard Keynes, whose advice that government spending must compensate for sagging private sector spending had not been sufficiently heeded during the Depression. Nor has it guided government policy in the Great Recession and its aftermath of continuing high unemployment.
Wartime full employment was very beneficial to all—except for those individuals who paid the price on the battlefield and the families who suffered their losses or disabilities. It was especially advantageous to African Americans and women who not only left the ranks of the unemployed but were often hired for higher skilled and better-paying jobs. It was probably these advantages and the recognition that full employment might be feasible in peacetime that led Roosevelt, near the close of the war, to frame an Economic or “Second Bill of Rights” that began with the right to “a useful and remunerative job” or living-wage employment (Roosevelt, 1944a; 1944b). Indeed, when FDR repeated the Economic Bill of Rights in his Employment, Poverty, and Social Welfare message to Congress in 1945, he held that “of these rights the most fundamental, and one on which the fulfillment of the others in large degree depends” is the right to a job (Roosevelt, 1945).The United Nations’ Universal Declaration of Human Rights, essentially a bill of rights for the world, includes economic as well as civil and political rights and was inspired by Roosevelt’s conceptualization of “freedom from want” or his view that “freedom without bread . . . has little meaning” (E. Roosevelt, 1990, 17, cited by Glendon, 2001, 43). The Universal Declaration that owed much to the leadership of FDR’s widow, Eleanor Roosevelt, includes a broad conception of employment rights: “Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment” (United Nations, 1948, Article 23; Glendon, 2001). The Universal Declaration of Human Rights is discussed in more detail in chapter 1.
The Postwar Experience
With the war ending, government leaders became concerned that demobilization and reduction of government spending could mean a return to high unemployment. Encouraged by the war’s lesson that expansive fiscal policy or sufficient government spending could cure unemployment, progressive legislators drafted a full employment bill that passed the Senate in 1945 and was endorsed by President Harry Truman (1945–1953). However, the following year full employment was defeated in the House of Representatives. At that time, the House was a more conservative body than the Senate, but there were other reasons for the defeat of the full employment bill: unemployment was not mounting as much as expected and anti-labor sentiment, fueled by a wave of postwar strikes, had risen. In addition, despite public sentiment in favor of it, there was no large-scale movement to press for the enactment of full employment (Bailey, 1950; Ginsburg, 1983).
Although postwar unemployment rose above wartime levels, it was initially held in check by a combination of factors: pent-up consumer demand owing to limited incomes during the Depression and the limited availability of products during the war; the G.I. Bill of Rights that provided income support and education to many veterans who would otherwise have become part of an army of the unemployed; and the departure of many women from the labor market as a result of firings, profamily propaganda, or their preference for the role of housewife. Even so, by 1949, unemployment was about triple the wartime lows. Shortly thereafter, however, the Korean War (1950–1953) reduced unemployment, and subsequent military spending for the Cold War helped to keep it in check, although nowhere near full employment. Readers, however, should bear in mind what will be discussed in greater detail subsequently: official unemployment rates greatly underestimate unemployment, and indeed are about half the number of jobless workers, either full- or part-time (see below). In the postwar period, the Keynesian prescription for conquering unemployment through expansive fiscal or taxing and spending policies was influential in the developed countries of Europe and North America.
Although it did not commit itself to full employment, the United States did adopt some Keynesian measures. Its brand leaned toward military Keynesianism as exemplified by its large Cold War defense expenditures. However, a big highway construction program during the presidency of Republican Dwight Eisenhower (1953–1960) has been seen as partly intended for job creation (H. Wilson, 2009), and spending for social insurance and public assistance increased, although not commensurate with rising need. Even with this increased defense and civilian spending, unemployment averaged 5.2 percent during the seven peacetime years of the Eisenhower presidency, and African American unemployment climbed to over twice the Caucasian rate, averaging 9.5 percent (Ginsburg, 1983, table 2.5, p. 40). African Americans lost ground because they were largely excluded from the whitecollar occupations that accounted for nearly all of the postwar job growth. In 1961, when John F. Kennedy became president, the unemployment rate was 6.1 percent, and in some months that year, 7.1 percent (U.S. Bureau of Labor Statistics, 2011).
Unemployment fell in the 1960s. One reason was across-the-board tax cuts that, unlike recent ones targeted to upper-income groups, did stimulate consumer demand. Other contributors were increased domestic spending for the War on Poverty and stepped-up expenditures for the Vietnam war. From 1966 to 1969, unemployment averaged 3.7 percent (U.S. Bureau of Labor Statistics, 2013d). This was relatively low but hardly full employment, and like all such periods of low unemployment, it was not sustained.
Even with low overall unemployment, studies conducted by the Department of Labor and by a Senate subcommittee found that ghetto rates were much higher, and if various indices of sub-employment to which we have already alluded, such as involuntary part-time employment and poverty-level wages were included, the ghetto rates averaged around 30 percent (Ginsburg, 1975; Spring, Harrison, & Vietorisz, 1972).
Although both unemployment and poverty afflicted millions of Americans during the thirty years after World War II, there were signs of progress and a general view that rising national income would be a “shared prosperity.” There were recessions but no depressions, a big change from the entire history of the United States prior to the 1930s. (There were depressions in 1837, 1857, 1873, 1893, 1907, and, of course, the Great Depression that began in 1929.)
In the three postwar decades, real wages rose steadily along with productivity. The shares of all income groups increased, but the bottom climbed faster than the top, and, at the end of the period, the grave political and civil inequalities of race and gender were being reduced through landmark civil rights measures. In addition, during the 1960s, there were government initiatives in health care, subsidized housing, food for the needy, and a large expansion of public assistance for singlemother families (Aid to Families with Dependent Children). For a time, there was some adherence to what earlier would have been considered an oxymoron, namely, “welfare rights” (West, 1981). According to liberal economist Robert Kuttner, the system “produced three decades of egalitarian economic growth” (2007, p. 64).
The U-Turn
A change of course or U-turn occurred in the mid-1970s. A number of economic changes had contributed to a “profit squeeze,” a substantial drop in the after-tax profit rate of non-financial corporations between 1965 and the second half of the following decade. The response to these changes is important. Instead of capital investment or innovation to increase productivity and to make the U.S. economy more competitive with the resurgent industries of Western Europe and Japan, businesses adopted strategies that squeezed labor. These featured wage freezes and work arrangements that increased the flexibility with which workers could be hired, fired, and scheduled. Also damaging to labor, particularly in manufacturing, was globalization, or transferring U.S. capital and business operations to lowerwage areas of the world, a development encouraged by federal tax policies and later abetted by trade treaties like the North Atlantic Free Trade Agreement (NAFTA) that was promoted and signed by President Bill Clinton. Still another strategy was to abandon production for paper profits, which also led to loss of manufacturing jobs. Through an unprecedented political mobilization, the business community and its allies moved on the ideological front, attempting to re-legitimize an unregulated free market and discrediting the government policies of the postwar decades. Between the mid-1970s and the Great Recession, U.S. output per person grew 91 percent (U.S. Bureau of Labor Statistics, 2012a, table 1a). The nation became richer, but its prosperity was not shared.
Unemployment was a permanent feature of the U.S. economy, but it averaged 4.7 percent from 1947 to 1974, compared to 6.2 percent from 1974 to 2007 (U.S. Bureau of Labor Statistics, n.d.a). In the mid-1970s, unemployment rose to the highest level since the Great Depression, 8.5 percent in 1975 (U.S. Bureau of Labor Statistics, 2013b). In the early 1980s, the Federal Reserve Board raised interest rates in order to cope with inflation. When interest rates rise, the cost of purchasing cars, houses, and other products rises, and thus fewer consumers can afford to buy them. With declining sales, employers lay off workers. With higher unemployment, employers can lower wages and workplace benefits, and workers in such a labor market feel obliged to accept these losses in order to avoid unemployment. Thus, the result of raising interest rates was an even higher rate of unemployment than the previous post-Depression high of the mid-1970s. The unemployment rate was almost 10 percent (9.7 percent) in 1982 (U.S. Bureau of Labor Statistics, 2011). Once again, labor forcibly paid the penalty for problems in the economy, this time to fight inflation.
One response to high unemployment in the 1970s was a return to government job creation. The largest of these programs, the Comprehensive Employment and Training Administration (CETA), made it possible to extend the services of state public agencies as well as nonprofit social services, but CETA was much smaller in relation to total unemployment than the WPA (Ginsburg, 1983; Rose, 2009). The Ronald Reagan administration (1981–1989) repealed CETA in 1982, even though unemployment was nearly 10 percent. Another congressional response to unemployment was the Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978 that set an interim target of 4 percent adult unemployment. However, the legislation was without teeth, and the average unemployment rate in the five years that followed was 8.0 percent, or double the interim target (U.S. Bureau of Labor Statistics, 2013d). Indeed, the nominal commitment to full employment did not stop the Federal Reserve from the previously mentioned policy of raising interest rates that led to higher unemployment.
Wages, like employment, changed course. Whereas real wages rose 75 percent between 1947 and 1973, they were stagnant between then and 2007, actually dropping 0.9 percent (Mishel, Bivens, Gould, & Shierholz, 2012, table 4.3). Due Employment, Poverty, and Social Welfare to congressional inaction or failure to raise the minimum raise in tandem with increases in the cost of living, its real value declined by 30 percent between 1968 and 2006. The poverty rate, which had been cut in half from 22.4 percent in 1959 to 11.1 percent in 1973, thereafter began to rise, reaching a high point of 15.2 percent in 1982. Although it approached the 1973 mark in the low unemployment year of 2000, the average from 1974 through 2007, just prior to the Great Recession-induced steep rise in unemployment was 13.0 percent (U.S. Census Bureau, 2011, table 2). This was the U-turn: from relatively low unemployment rates, rising real wages, and falling poverty rates to rising unemployment, stagnant wages, and rising poverty. Despite the worsening conditions for workers, the Democratic administration of Bill Clinton tightened work requirements in public assistance in 1996 with the repeal of Aid to Families with Dependent Children, the entitlement to relief of poor women and their children (this is discussed in more detail in chapter 2). Indeed, Democrats as well as Republicans had taken the U-turn. The impact of these strict work requirements was softened by a reduction in unemployment in the next four years that, like similar previous periods, was short-lived. A brief recession began in 2001 and was followed by a “jobless recovery” that took much longer than in past recessions to regain a prior employment peak (Mishel, Bernstein, & Allegretto, 2007).
During most of the time since the Great Depression, labor market conditions have fluctuated between recessions, some mild and others more serious, and better times that were still fraught with job and income losses for millions of workers and their families. With recovery from the previous recession still incomplete, disaster struck. The financial meltdown of 2008 greatly exacerbated the recession that had already begun in the last month of the previous year. Unemployment doubled between December 2007 and October 2009 and was over 9 percent in all but one month until September 2011 (U.S. Bureau of Labor Statistics, 2013c). In December 2010, Federal Reserve Board Chairman Ben Bernanke warned that it could be four or five years until unemployment returned to a “normal” rate of 5–6 percent (Baranauckas, n.d.), a level that spells joblessness for millions of workers. Not only is unemployment high, much of it is long-term. By 2008, the proportion of the labor force unemployed for twenty-seven weeks or more had already reached its highest since the Bureau of Labor Statistics started keeping records of long-term unemployment in 1948, and it continued to climb (Rampell, 2010).
Excerpted from: Goldberg, Gertrude Schaffner, “U.S. Employment Policy in Historical Perspective,” from “Employment, Poverty, and Social Welfare.” New Perspectives on Poverty, edited by Elissa D. Giffords & Karen R. Garber (Lyceum Books, 2014).