Why Didn't the U.S. Unemployment Rate Rise at the End of WWII
Abstract:
This paper investigates why the U.S. unemployment rate rose o nly a few percentage points despite the dramatic decline in government spen ding and other upheaval at the end of World War II. Using a new longitudina l data set based on archival sources and government surveys, we study the m any facets of this question. Our findings suggest the following answers.&nb sp; First, the dramatic decline in government spending led to a significant ly smaller decrease in GDP than predicted by standard Keynesian models.&nbs p; Instead, private job creation surged as private activity was “crowded in ” by the fall in government spending. Second, even conditional on the actual fall in GDP, the unemployment rate rose much less than predicted by Okun’s Law. We use a new decomposition method to show that unusual m ovements in labor force participation rates, hours worked, and productivity led to a breakdown in Okun’s law during the 1940s. Third, the U.S. l abor market worked with astounding efficiency: despite large sectoral shift s at the end of the war, most of the workers who separated from their jobs moved directly into new jobs without experiencing unemployment. All of thes e factors lined up to create a post-war boom in the U.S.
DTSTAMP:20260416T210251Z DTSTART:20260325T043000Z DTEND:20260325T180000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR