IV.

Government Involvement

As a result of this depression, the U.S. government took steps to alleviate unemployment. In the mid-1930s millions of jobs were provided by public works and other special programs. Notable among the federal agencies established to carry out these programs were the Civilian Conservation Corps and the National Youth Administration, which employed young workers on a wide variety of projects; and the Work Projects Administration, which embarked on a broad program involving both public-works construction and cultural and recreational activities.

Another New Deal measure was the Social Security Act of 1935, which set up the first comprehensive social-insurance system in the U.S. (see Social Security). It introduced unemployment insurance, providing workers who lose their jobs with a weekly compensation payment. By maintaining the workers' purchasing power, unemployment insurance reduces cyclical swings in demand, thus helping trade and industry.

The enactment of various laws aimed at reviving business and industrial activity resulted in a substantial improvement in U.S. economic conditions and a decline in unemployment. Soon after the outbreak of World War II in September 1939, the U.S. government launched a program for expanding and modernizing the national defense system. The program provided industry with a powerful stimulus, and unemployment rapidly declined. After the U.S. entered the war in December 1941, not only was the goal of full employment attained, but a shortage of labor replaced the previous shortage of jobs.

In the postwar period a major new measure was passed by the Congress. The Employment Act of 1946 proclaimed that the federal government would take the responsibility for maintaining high employment levels, economic stability, and growth; that is, the government would coordinate its economic policies (such as those on taxation, expenditures, foreign trade, and control of money, credit, and banking) in such a way as to prevent serious depressions. A Council of Economic Advisers was set up to monitor the economy and provide advice to the president and Congress. Between 1945 and 1990 nine cyclical swings in unemployment occurred; all were smaller than the 1930s depression. During this period the unemployment rate was as low as 2.9 percent (1953) and as high as 9.7 percent (1982). Because of cutbacks in the unemployment insurance program and changes in the nature of employment during the 1980s, however, only 37 percent of jobless workers received benefits in 1990.

Fears that the introduction of automation and other labor-saving technology would increase unemployment have led some workers to oppose such changes. Labor-saving methods, however, increase output per worker and make possible rising levels of worker income. In order to deal with the effects of technological change, the government passed several acts, such as the Manpower Training and Development Act (1962), the Comprehensive Employment and Training Act (1973), and the Job Training Partnership Act (1982), to set up programs designed to train the unemployed in those skills in which there was employment opportunity.

A major policy issue is the relation of unemployment to inflation. In theory, when demand for labor rises to the point at which unemployment is low and employers find it difficult to hire qualified workers, wages increase, pushing production costs and prices higher and thus contributing to inflation; when demand declines and unemployment increases, inflationary pressures on wages and production costs are relieved. Confounding this theory, however, both inflation and unemployment rates were high in the 1970s. The government adopted policies to control inflation that involved reducing demand in the economy in the expectation that one of the costs of lowering inflation would be rising unemployment. Indeed, the unemployment rate rose from 5.8 percent in 1979 to 9.7 percent by 1982 before dropping back to between 5 and 7 percent in the mid- and late 1980s.