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Comparisonof the Changes of Policy during the Great Depression aboutUnemployment and Labor Market among UK, US and Italy
Inessence, the great depression is one of the events, which influencedchange in social, economic, political, and environmental factors inthe entire globe. Notably, one of the factors, which caused the greatdepression, is the lack of proper government policies needed topredict future outcomes in terms of food production, the labormarket, industrial growth, inflation, and unemployment (Bernanke,2009). At the time, countries such as the UnitedStates, the United Kingdom, and Italy were undergoing social-culturalchanges, economic shifts, and political alignments. As such, most oftheir strategies focused on creating policies essential for dealingwith present issues as opposed to future challenges. Therefore, thegreat depression was an unexpected factor, which resulted in theformation of policies that focus on predicted situations using past,present, and future societies(Toniolo, 2013). At the time, governments did not havewell established economic concepts and theories for dealing withissues such as mass unemployment, inflated prices, and slump in stockprices. In addition, there was no exact definition for the role ofmiddle and lower income level workers in growing the state. Hence,the ten-year economic downturn gets credit for establishing policyfor dealing with labor laws, social-economic welfare, andunemployment in the labor market (Bagusat,2011).
Thispaper investigates how the governments of three countries respondedto unemployment and the labor market during the great depression. Inaddition, the paper researches how middle and lower levels of peoplebrought actions to improve significant unemployment rate during thegreat depression.
The Great Depression (the United States)
In1929, the American stock market crashed owing to the combination ofreduced consumer spending, slow production and the pile up of surplusgoods. While the consensus of the market was to reduce in itsspending, the prices of the stocks surprisingly shot up (Toniolo,2013). With that said, the highvalue of the stock was not reflective of the anticipated earnings ofthe market in the future. One of the implications of the rise andfall of the market was the dumping of shares by shareholders andcompany owners. The market crush reached its peak in October 24 1929whereby an exchange of 12.9 million was experienced (black Thursday).In addition, the stock market traded 16 million shares on Tuesday(black Tuesday) making millions of shares worthless. The primaryimplication of the market crash was high unemployment rates andinflated prices in the country (Bernanke,2009).
Policychanges in Unemployment and the Labor Market
Inlight of the stock market crash, many consumers lost confidence inthe market, which resulted in slow production, unemployment, andreduced wages. The banking sector is one of the industries that feltthe downturn. For example, the bank of the United States (New York)collapsed. At the time, the bank had approximately 200million$ indeposits. As a response to this occurrence, Congress established theReconstruction Finance Corporation (RFC), as a means of loaning twobillion dollars to financial institutions such as (banks, lendinginstitutions, insurance firms, railroads, agricultural creditorganizations, and building associations).
Ideally, these institutions played a vitalrole in the general function of the countries state and nationalproduction. As such, financial instructions, construction companies,and the agriculture sector could now operate under the protection ofloans from the (RFC) and other bodies that are essential in providingquick loans in the case of an economic emergency (Cole &Ohanian, 2001). Since the country was highlyindustrialized, some of the hardest hit sectors were companies thatemployed millions of workers in industries such as the railways.Workers in such industries joined unions as a means of advocating forhigher wages and reduced workings hours. Furthermore, workers in thecities like New York protested for the change of reforms to supportunemployed individuals and low-income families. The move to fundvarious institutions stabilized businesses, which in turn hiredmillions of employees in both the public and private sector (Crafts& Fearon, 2013).
Ideally, one of the main causes of the greatdepression was the disparity between production and consumption. Forinstance, the amount of food and commodities produced exceeded thenation’s consumption capability. In this case, World War 1 enhancedthe invention and innovation of machinery used in farming,construction, and food production. To reduce the margin experiencedin the country’s economy, the government supported nationalcompanies that focused on providing employment for Americans insectors such as automobile, textile, farming, and shipping. In turn,the government also focused on introducing welfare policies tosupport low-income families. Some of the benefits were healthbenefits, education grants, and economic bailouts for strugglingcompanies (Bernanke,2009).
TheGreat Depression (Italy)
Like most countries, World War 1 had a massive effect on Italy. Inthis case, one of the implications of the world war was the pooreconomic state of the European country (Keynes,2007). At the time, the country was shifting toindustrial development. However, the war resulted in the loss ofmillions of dollars of the countries funding. As such, some of theeffects were unemployment, debt, food shortages, work strikes, andslow production. Moreover, Mussolini’s rise to power in 1922resulted in the change of the country’s economic system to fascistrule (Toniolo,2013). Under fascism, the government incorporatedpolicies in favor of the dissolution of capitalist and corporateeconomic structures by including government rule in various sectors.Hence, many corporations, production companies, and industries sloweddown their production. The country’s economic system lagged behindfor the next eight years. However, one of the factors responsible forthe overall economic downturn was the 1929 market crash in the UnitedStates. To summarize, the international events in industrializedcountries such as the United States, England, and France resulted inthe slump of Italy’s economy (Bagusat,2011).
Policychanges in Unemployment and the Labor Market
Following the great depression in Italy, the country experiencedincreased pricing and increased unemployment. Given that the labormarket was highly affected, the government addressed factors ofproduction to solve the disparities created by the high standards ofliving. Ideally, there was no significant effect on the agriculturesector (Keynes,2007). In addition, Mussolini’s, fascist policiesstreamlined the corporate and capitalist policies which wereresponsible for creating disparities between the wealthy minority,the working class, and the poor. However, the same policies wereresponsible for the high rate of unemployment and poverty in thecountry. Some of the post depression policies introduced included thefunding of local/national corporations and industries to support thecountries labor market. For example, banks bailed out industries,which failed during the peak of the depression in 1931-1933. One ofthe drastic measures included the formation of the industrialreconstruction Institute (IRI) that was in charge of managingcompanies owned by banks. This move initiated the privatization ofmany companies and industries in the country, which were linked tothe government (Crafts& Fearon, 2013).
To date, the country still experiences the implications of thisstrategy given that Italy has the largest industrial sector inEurope. To achieve this goal, IRI changed the structure of bothnational and international industries making it easier for companiesto attain loans and enhance output hence reducing unemployment by 30%. In addition, the country modernized the industries by introducingemerging innovations in various sectors (Toniolo,2013). Lastly, the body rationalized ineffectivecompanies by encouraging strategies that increase efficiency andremoving practices and functions that hinder accountability andeffective production. As such, these policies created strongindustries, which could employ millions of people in the laborworkforce. In turn, the new reforms protected entrepreneurs,white-collar workers, and manual laborers by addressed issues facedby workers in different sectors, job descriptions, experience, andlevels of production (Bagusat,2011).
TheGreat Depression (United Kingdom)
Commonly known as the Great Slump, the great depression in the UnitedKingdom has similar causes and effects to the United States andItaly. With that said, the country had a different social economicarrangement from that of the two economies making the countryintroduce policies, which were reflective of its political system(Keynes, 2007). In the early years of the 20thcentury, (1900s-1914) the country’s economy was stable. Most peoplehad jobs and the rate of underemployment was low. One of the reasonsfor this dynamic was the passing of reforms in 1911 following massiveriots and demonstrations in Britain’s Trafalgar Square by workersin low and middle level jobs (Cole & Ohanian, 2001). For example,the government passed laws granting sickness benefits for workersespecially in industries. Benefits extended to workers in redundantsectors such as shipping, mining, and textile industries. Notably,workers in agriculture did not receive the same benefits given thestability of the sector. However, in the early parts of the 20thcentury (1920s) unemployment had risen to 12% owing to the rise ofthe working class. In the 1930s, the recession in the UK reached itspeak with unemployment reaching a record 22.8% due to the rise ofinternational trade, which in turn created high competition inindustries like coal mining (Cole & Ohanian, 2001).
Policychanges in Unemployment and the Labor Market
To reduce the effects of the depression in the country, thegovernment introduced a new set of laws to support decliningindustries. Some of the actions of workers in the mid and lowerlevels employment bracket brought attention to the government. Forexample, workers in London took part in hunger strikes and marcheswith the hope of getting the governments attention. Most of theworkers were in the mining and textile industries located in northernEngland. In essence, the country’s depression was a ripple effectof the United States 1929 market crash. During the 1930s,approximately 3 million workers were unemployed(Crafts & Fearon, 2013). Some of the demonstrationsresulted in the creation of dole, which were payments from localgovernments as a form of welfare for unemployed workers thatrepresented 70% of the nation’s population. The second responseincluded imposing high taxes on the rich to supplement the high costsexperienced owing to the creation of dole payments to the poor. Inaddition, the government cut public spending and finally agreed tolarge wage cuts in various economic sectors such as banking,education, shipping, and mining. In response to the move by the Laborgovernment, trade unions protested against any wage cuts sitting thatlow pay for overworked employees (Bernanke,2009).
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Bernanke, B.(2009). Essayson the Great Depression.Princeton, N.J: Princeton University Press.
Crafts, N. F.R., & Fearon, P. (2013). TheGreat Depression of the 1930s: Lessons for today.Oxford : Oxford UniversityPress, 2013.
Cole, H., & Ohanian, L. (2001). “New Deal Policies and thePersistence of the Great Depression: A General Equilibrium Analysis,”Federal Reserve Bank of Minneapolis Working Paper 597.
Keynes, J. M.(2007). GeneralTheory of Employment, Interest and Money.New Delhi: Atlantic Publishers & DistributorsPvt Ltd.
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