Explain the persistence of high unemployment in Britain in the interwar years. Was unemployment in the period 1919-1939 voluntary?

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Explain the persistence of high unemployment in Britain in the interwar years. Was unemployment in the period 1919-1939 ‘voluntary’?

Some argue that unemployment in Britain remained at a high level due to bargaining and institutional rigidities, the effects of long-term unemployment and the high turnover of the period. This essay will argue that most unemployment in this period was involuntary, and a result of demand shocks affecting the natural rate of unemployment, although it will reason that unions, long term unemployment and inefficient labour markets also played a role in maintaining British unemployment at a high level.

In 1921, British unemployment peaked both in terms of level and rate, with 2.212 million unemployed, representing an unemployment rate of 12.2%. After this, unemployment remained high until World War II, never falling below 1 million unemployed throughout the period. This persistence in unemployment was attributed by some, in part, to the high levels of unionisation in Britain at the time, and hence the existence of wage and institutional rigidities. In the interwar period, around  to  of the British labour force was covered by Union memberships, peaking at 44% of the labour force in 1920. Data suggests that union density in the 1920s was twice that of the pre-War decade. However, there was a massive drop in unionization during the interwar period, from 8.3 million members in 1920 to only 4.4 million by 1933. The revolution in bargaining over pay, however, was not simply one of numbers. The strength of unionism in pay bargaining was also enhanced by the development of formal collective bargaining structures, such as Trade Boards, which set minimum wages.

Established in four low paid sectors under the Trade Boards Act of 1909, their scope was massively expanded with the Trade Boards Act of 1918 and by 1921 there were 63 Trade Boards covering 3 million workers. It is estimated, in fact, that from 1919 onwards, around  of the labour force was covered by collective agreements. These Trade Boards and agreement, research suggests, were a cause of significant wage rigidities at least from 1923 onwards due to coordination failure and protection from outsider competition. Notwithstanding, researchers have found little evidence to support this argument, as massive drops in prices in the interwar period meant that there was no exceptional real wage rigidity. For instance, real wages were about 10% higher in 1929 than in 1913, and rose another 10% by 1938. Despite this, it could be argued that a combination of market power resulting from unionisation and lack of coordination could have increased the NAIRU, with a special emphasis on the lack of coordination, as evidenced by the breakdown of both the National Industrial Council in the 1920s and the failure of the Mond-Turner talks (1927-8). Hence, wages were too high because of a coordination problem, which played a part in maintaining the high levels of unemployment, as the labour market could not clear at those wage rates.

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Another reason often cited for the persistence of unemployment was the increase of long-term unemployment alongside a high turnover in the interwar period. As the proportion of long-term unemployed rose from 5% in 1929 to 25% in 1936, the average number of spells of unemployment also rose, reaching 7.3 in 1931, with an average duration of 20.8 days each for men who were employed at the time when this research was carried out. Clearly, having more people out of work on a long-term basis would raise the natural rate of unemployment. The debate, however, focuses on the causes of ...

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