3 - The American Wage Structure: 1920–1947

Summary

This chapter uses industrial wage data to examine changes in the interindustry structure of wages between 1920 and 1947. We first sort among the available data on wage changes by industry and occupation to identify blocs that exhibit common patterns of wage change over time. We then analyze the sources of wage variation across groups and through time. We identify four such forces that together explain 97 percent of the variance in wage change across groups, and we identify variables in the historical record that appear to correspond to these forces. In a reversal of the usual notions of micro-to-macro causality, we argue that a small number of macroeconomic variables thus account for a large proportion of distributional changes.

Introduction

Impressed by the sweeping implications of the mind–body problem, the German philosopher Arthur Schopenhauer referred to that famous conundrum as the Weltknoten, the “World Knot.” Economic history is more prosaic. Yet the economic experience of the United States between World War I and the end of World War II did generate one problem with nearly as sweeping repercussions in its field: the behavior of wages.

This period spans the slump following World War I, the Roaring Twenties, the Great Depression, the New Deal, and World War II – times of turmoil encompassing every form of economic, technological, political, and social change. Studies of wage determination during this time can therefore illuminate many competing hypotheses, perhaps more effectively than studies of the allegedly more tranquil postwar period.