ABSTRACT: “The Defining Moment Hypothesis: The Editors’ Introduction”
There is a widely held belief that the Great Depression was the “defining moment” in the development of the American economy. According to this view, the severity and length of the depression altered the basic rules, institutions, and attitudes governing the economy. Considerable evidence bolsters this view: the growth of government as a share of GNP accelerated in the 1930s; the relationship between the federal government and state and local governments was irrevocably altered around 1935; transfer policies were adopted on a large and national scale in 1935; and after World War II the federal government declared that it would be responsible for the economic health of the nation. But was the Great Depression a “defining moment” in the manner thought?
The volume we have edited offers testimony to the legacy of the Great Depression. Without the depression, there would not have been a flood of New Deal-style legislation. Some innovations would have occurred following the dictates of economic growth, the two world wars, and the nation’s political economy. But, lacking the catalyst that jarred public attitudes and demanded action, the new economic institutions would have been more modest and different in character. The large role of today’s government and its methods of intervention—from the pursuit of more activist monetary policy to the maintenance and the extension of a wide range of insurance for labor and business—derive from the crisis years of the 1930s. Not all programs inaugurated by the New Deal have survived. But the basic imprint of the defining moment is still visible.
ABSTRACT: “A Distinctive System: Origins and Impact of U.S Unemployment Compensation”
Unemployment compensation in the United States was signed into law in August 1935 as part of the omnibus Social Security Act. Drafted in a period of uncertainty and economic distress, the portions that dealt with unemployment insurance were crafted to achieve a multiplicity of goals. Among these goals were to secure passage of the act by Congress and to guarantee its constitutionality, since much New Deal legislation had been declared unconstitutional by the U.S. Supreme Court.
To guarantee is constitutionality, the UI portion of the Social Security Act was crafted as a state program, but adherence to it was guaranteed by an involved federal mandate. UI was “experience rated,” which meant that firms with greater unemployment were to be taxed more heavily, up to some maximum. States were to add other features, such as limitations on benefits, eligibility, and the details of experience rating.
In this paper, we contend that many of the features of the UI system were products of the times, reflecting expediency more than efficiency. Thus the UI system would have been different had it been passed in a less economically trying and uncertain decade. We present evidence showing that greater seasonality in manufacturing employment by state in 1909-1929 was related to higher UI benefits from 1947 to 1969. This relationship only holds for states having a manufacturing share of employment below the national mean, since a state with mainly highly seasonal industries and a generous UI system would impose a heavy tax. Thus the lobbying activities of seasonal industries were important in states with a modicum of manufacturing employment and this relationship appears to have been important in the evolution of the parameters of the system.
In sum, the UI system would probably have been adopted nationally at some point in U.S. history even had the Great Depression not occurred, but it would likely not have the precise details of today’s system.