Full text of Working Papers (Federal Reserve Bank of Richmond) : The Role of Real Wages, Productivity, and Fiscal Policy in Germany's Great Depression, 1928-37, Working Paper 01-07

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Working Paper Series

The Role of Real Wages, Productivity,
and Fiscal Policy in Germany's Great
Depression 1928-37

WP 01-07

Jonas D.M. Fisher
Federal Reserve Bank of Chicago
Andreas Hornstein
Federal Reserve Bank of Richmond

This paper can be downloaded without charge from:
http://www.richmondfed.org/publications/

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^54` Ulwvfko/ D1 +4<<3,1 ]x krkh Oùkqh lq ghu Zhlpduhu UhsxeolnB Hlqh Dxvhlqdqghuvhw}xqj plw
Krowiuhulfkv Ehuhfkqxqjhq }xu Orkqsrvlwlrq ghu Duehlwhuvfkdiw 4<5804<65/ Jhvfklfkwh xqg
Jhvhoovfkdiw 49= 6:807351
^55` Ulwvfko/ D1/ dqg Vsrhuhu/ P1 +4<<:,1 Gdv Euxwwrvr}ldosurgxnw lq Ghxwvfkodqg qdfk
ghq dpwolfkhq Yronvhlqnrpphqv0 xqg Vr}ldosurgxnwvvwdwlvwlnhq 4<3404<<8/ Mdkuexfk i u
Zluwvfkdiwvjhvfklfkwh 4<<: +5,/ 5:0871
^56` X1V1 Ghsduwphqw ri Frpphufh1 EHD +4<<6,1 Wkh Qdwlrqdo Lqfrph dqg Surgxfw Dffrxqwv ri
wkh Xqlwhg Vwdwhv1 Yro14/ 4<5<08;1
^57` X1V1 Ghsduwphqw ri Frpphufh1 Exuhdx ri wkh Fhqvxv +4<:8,1 Klvwrulfdo Vwdwlvwlfv ri wkh Xqlwhg
Vwdwhv1 Frorqldo Wlphv wr 4<:31 Sduw 41

65

Wdeoh L
Surgxfwlrq dqg wkh Uhdo Zdjh/ 4<5;04<6:
\hdu
4<5<
4<63
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Rxwsxw
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Fdslwdo
Vwrfn
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;:16
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Oderu
<<16
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;518
:714
:915
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Oderu
Surgxfwlylw|
<919
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WIS
<91:
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43717
44413

Uhdo Zdjh
43719
43<1;
44416
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4391;
43715
43615
43515
43319

Qrwh= Rxwsxw lv uhdo JQS iurp Ulwvfko +5334,1 Wkh frqvwuxfwlrq ri wkh fdslwdo vwrfn vhulhv lv
ghvfulehg lq wkh Dsshqgl{1 Oderu lv wrwdo krxuv zrunhg iurp Oùokùho +4<:7,1 Oderu surgxfwlylw| lv
rxwsxw shu krxu zrunhg1 Wkh fdofxodwlrq ri WIS lv ghvfulehg lq Vhfwlrq 5151 Uhdo zdjhv duh qrplqdo
zdjhv iurp Oùokùho +4<:7, gh dwhg zlwk wkh sulfh lqgh{ iru qlvkhg pdqxidfwxuhg jrrgv iurp Eu|
+4<93,1 Doo yduldeohv h{fhsw wkh uhdo zdjh duh shu fdslwd1 Rxwsxw/ fdslwdo/ oderu surgxfwlylw|/ WIS
dqg uhdo zdjhv duh ghwuhqghg zlwk wkh shu fdslwd uhdo JQS wuhqg jurzwk udwh1 Doo vhulhv duh
qrupdol}hg wr 433 lq 4<5;1 Erog lqglfdwhv wkh |hdu ri wkh wurxjk lq uhdo shu fdslwd JQS1
Wdeoh LL
Sulfhv dqg wkh Prqh| Vxsso|/ 4<5;04<6:
\hdu
4<5<
4<63
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4<65
4<66
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Ilqlvkhg Jrrgv
<<16
<71:
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:716
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:613
:816
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Sulfh Lqgh{
Frvw ri Olylqj
43416
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P4
JQS Gh dwru
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43715

Qrwh= Wkh frvw ri olylqj sulfh lqgh{ dqg wkh zkrohvdoh sulfh lqgh{ iru qlvkhg pdqxidfwxuhv lv
iurp Eu| +4<93,> wkh lpsolflw JQS gh dwru lv iurp Ulwvfko +5334,> P4 lv fxuuhqf| lq wkh qrq0
edqnlqj vhfwru soxv ghpdqg dqg wlph ghsrvlwv iurp Ghxwvfkh Exqghvedqn +4<:9,1 Doo wlph vhulhv
duh qrupdol}hg wr 433 lq 4<5;/ exw qrw ghwuhqghg1 Erog lqglfdwhv wkh |hdu ri wkh wurxjk lq uhdo shu
fdslwd JQS1

66

Wdeoh LLL
JQS H{shqglwxuh Frpsrqhqwv/ 4<5;04<6:
\hdu
4<5<
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J
4381:
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43415
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47;15
4961:
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Sdqho D= Ghwuhqghg
J[
F
JF
43;18
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\hdu
4<5;
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J
3145
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J[
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3136 31:8 3148 3146
3136 31:8 3146 3145
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3135 31;: 3134 313;
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3138 31:7 3144 313<
313: 31:3 3145 3143
313: 3199 3146 3144
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Lp
3153
3154
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3153
314;
3148
3147
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Qrwh= Wrwdo jryhuqphqw sxufkdvhv ri jrrgv dqg vhuylfhv +J, dqg lwv frpsrqhqwv jryhuqphqw
frqvxpswlrq +JF , dqg lqyhvwphqw +J[ ,/ sulydwh frqvxpswlrq +F,/ wrwdo sulydwh lqyhvwphqw +[,
dqg lwv frpsrqhqwv sulydwh {hg lqyhvwphqw +[IL[ , dqg lqyhqwru| lqyhvwphqw +[LQY ,/ h{sruwv
+H{,/ dqg lpsruwv +Lp, duh iurp Ulwvfko +5334, dqg ghvfulehg lq wkh Dsshqgl{1 Doo yduldeohv duh
uhdo shu fdslwd/ ghwuhqghg zlwk wkh shu fdslwd uhdo JQS wuhqg jurzwk udwh/ dqg ohyhov duh qrupdol}hg
wr 433 lq 4<5;1 Erog lqglfdwhv wkh |hdu ri wkh wurxjk lq uhdo shu fdslwd JQS1

67

Wdeoh LY
Ilvfdo Srolf|/ 4<5;04<6:

\hdu
4<5;
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4<63
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Jryhuqphqw Vshqglqj
dv d iudfwlrq ri JQS
Wrwdo
J
Wu
3156 3146
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3145 3146
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Udwhv

3154
3155
3156
3158
3159
3158
3157
3157
3158
3159

Qrwh= Qrplqdo sxufkdvhv ri jrrgv dqg vhuylfhv +J,/ wudqvihu sd|phqwv +Wu, dqg JQS duh iurp
Ulwvfko +5334,1 Zh kdyh qrw lqfoxghg uhsdudwlrqv dqg lqwhuhvw rq jryhuqphqw ghew1 Wkh fdofxodwlrq
ri wkh lpsolflw lqfrph wd{ udwh   dqg vdohv wd{ udwh  e lv ghvfulehg lq wkh wh{w/ dqg wkh hhfwlyh
wd{ udwh  lv edvhg rq +614,1 Erog lqglfdwhv wkh |hdu ri wkh wurxjk lq uhdo shu fdslwd JQS1

68

Iljxuh 4
Rxwsxw lq Jhupdq| dqg wkh Xqlwhg Vwdwhv gxulqj wkh Ghsuhvvlrq
100

95

90

85

80

75

70
Germany
65
US

60
-2

-1

0

1

2

3

4

5

6

7

8

9

Qrwh= Rxwsxw lv shu fdslwd uhdo JQS iru Jhupdq| 4<5906: dqg wkh Xqlwhg Vwdwhv 4<5:06;1 Hdfk
vhulhv lv ghwuhqghg zlwk lwv uhvshfwlyh orqj0uxq dyhudjh jurzwk udwh/ dqg qrupdol}hg wr 433 dw wkh
shdn1 Wkh shdn |hdu 3 lv 4<5; iru Jhupdq| dqg 4<5< iru wkh Xqlwhg Vwdwhv1 Wkh wuhqg jurzwk
udwh iru Jhupdq| lv 41;:( dqg wkh wuhqg jurzwk udwh iru wkh Xqlwhg Vwdwhv iurp 4<340<7 lv 41<3(1
Vrxufhv= Ulwvfko +5334, dqg Ulwvfko dqg Vsrhuhu +4<<:, iru Jhupdq| dqg X1V1 Ghsduwphqw ri
Frpphufh +4<:8/ 4<<6, iru Xqlwhg Vwdwhv1

69

Iljxuh 5
Rxwsxw lq Jhupdq| dqg wkh Xqlwhg Vwdwhv/ 4<3404<<6

1 0

9 .6

9 .2

8 .8

8 .4

G e rm a n y
8
U S

7 .6
191 0

1920

1930

1940

1950

196 0

1970

1980

Qrwh= Orj0ohyho ri uhdo shu fdslwd JQS/ vhh Iljxuh 41

6:

19 90

Iljxuh 6
Lqgxvwu| fr0pryhphqw ri qrplqdo zdjhv/ 4<5;04<6:

120

110

100

90

80

A g ric u ltu re
E n e r g y / M in in g
M a n u fa c tu rin g
C o n s tr u c tio n

70

T ra d e
T r a n s p o r ta tio n
60
1928

1929

1930

1931

1932

1933

1934

1935

1936

1937

Qrwh= Lqgxvwu| qrplqdo xqlw oderu frvw iurp Oùokùho +4<:7,/ qrw ghwuhqghg/ qrupdol}hg
4<5;@4331

6;

Iljxuh 7
Wkh hhfwv ri d ghfolqh lq WIS
Hours

Output

100

105
100

95

95
90

90
85

85

80
80
75
1928

75
70
1930

1932

1934

1936

1928

1930

Consumption

1932

1934

1936

Investment

120

100

100

95

80
90
60
85

40

80

20

1928

1930

1932

1934

0
1928

1936

1930

1932

1934

Wages
110

105

Model

100

Data

95

90
1928

1930

1932

1934

1936

6<

1936

Iljxuh 8
Wkh hhfwv ri dq xqdqwlflsdwhg fkdqjh lq vfdo srolf|

Hours

Output
105

100

100

95

95
90

90

85
85

80

80
75
1928

75
70
1930

1932

1934

1936

1928

1930

Consumption

1932

1934

1936

Investment

100

140
120

95

100
90

80
60

85

40
80
20
1928

1930

1932

1934

1936

1928

1930

1932

1934

Wages
110
Model

108
106

Data

104
102
100
1928

1930

1932

1934

1936

73

1936

Iljxuh 9
Wkh hhfwv ri wrr kljk uhdo zdjhv

Hours

Output

100

100

95

95

90

90

85

85

80

80

75
75
70
70
1928

1930

1932

1934

1936

1928

1930

Consumption

1934

100

95

80

90

60

40

85

20

80

1930

1932

1934

0
1928

1936

1930

1932

1934

Wages
110
Model

108
106

Data

104
102
100
1928

1936

Investment

100

1928

1932

1930

1932

1934

1936

74

1936

Iljxuh :
Frpelqlqj wkh hhfwv ri wrr kljk uhdo zdjhv dqg vfdo srolf|

Hours

Output

100

100

95

95

90

90

85

85

80
80
75
75
70
70
65
1928

1930

1932

1934

1936

1928

1930

Consumption

1934

100

95

80

90

60

40

85

20

80

1930

1932

1934

0
1928

1936

1930

1932

1934

Wages
110
Model

108
106

Data

104
102
100
1928

1936

Investment

100

1928

1932

1930

1932

1934

1936

75

1936

Iljxuh ;
Frpelqlqj wkh hhfwv ri wrr kljk uhdo zdjhv/ vfdo srolf|/ dqg WIS

Hours

Output

120

120

110

110

100

100

90

90

80

80

70

70

60

60

50

50

40
1928

1930

1932

1934

40
1928

1936

1930

Consumption

1934

120

90

100

80

80

70

60

60

40
20

50
1930

1932

1934

0
1928

1936

1930

1932

1934

Wages
110
Model

108
106

Data

104
102
100
1928

1936

Investment

100

1928

1932

1930

1932

1934

1936

76

1936

Wdeoh D1L
Dowhuqdwlyh Phdvxuhv ri Hpsor|phqw
\hdu
4<5<
4<63
4<64
4<65
4<66
4<67
4<68
4<69
4<6:

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+4<:7,
<<16
<616
;518
:714
:915
;715
;718
;:18
;<1;

Ulwvfko
+4<<3,
<81;
;;1<
:915
9918
9:16
:91;
;513
;<16
<:13

Krpdqq
+4<98,
<914
;;1;
;31:
:716
:915
;614
;719
;<15
<615

Qrwh= Wkh vhulhv duh ghvfulehg lq wkh Dsshqgl{1 Doo vhulhv duh shu fdslwd dqg qrupdol}hg wr 433 lq
4<5;1
Wdeoh D1LL
Dowhuqdwlyh Phdvxuhv ri Uhdo Zdjhv
\hdu
4<5<
4<63
4<64
4<65
4<66
4<67
4<68
4<69
4<6:

Oùokùho
+4<:7,
43719
43<1;
44416
43<18
4391;
43715
43615
43515
43319

Ulwvfko
+4<<3,
43615
4361;
4431:
43<17
44517
43:19
43813
43514
<<1;

Eu|
+4<93,
43714
4361<
43717
<<16
<;18
<91:
<616
<514
;<19

Qrwh= Wkh qrplqdo zdjh vhulhv duh ghvfulehg lq wkh Dsshqgl{1 Doo vhulhv duh gh dwhg zlwk wkh
zkrohvdoh sulfh lqgh{ iru qlvkhg pdqxidfwxuhv iurp Eu| +4<93,1 Wkh uhdo zdjhv duh wkhq ghwuhqghg
zlwk wkh shu fdslwd JQS wuhqg jurzwk udwh/ dqg wkh| duh qrupdol}hg wr 433 lq 4<5;1

77

Iljxuh D14
Wzr Phdvxuhv ri Jhupdq Rxwsxw Gxulqj wkh Ghsuhvvlrq/ 4<5804<6;

1 0 5 .0 0

1 0 0 .0 0

9 5 .0 0

Index

9 0 .0 0

8 5 .0 0

8 0 .0 0

7 5 .0 0
R it s c h l
7 0 .0 0
M a d d is o n

6 5 .0 0
1925

1927

1929

1931

1933

1935

1937

Qrwh= Rxwsxw lv shu0fdslwd uhdo JQS iru Jhupdq| 4<5806; ghwuhqghg zlwk wkh orqj0uxq dyhudjh
jurzwk udwh dqg qrupdol}hg wr 433 lq 4<5;/ vhh Iljxuh 41 Wkh vrxufhv duh Ulwvfko +5334, iru wkh
olqh odehohg Ulwvfko/ dqg Pdgglvrq +4<<8, iru wkh olqh odehohg Pdgglvrq1

78
Full text of Working Papers (Federal Reserve Bank of Richmond) : The Role of Real Wages, Productivity, and Fiscal Policy in Germany's Great Depression, 1928-37, Working Paper 01-07

FRASER
