Research

The Wagner Act changed the relative bargaining power between firms and workers which allowed workers to capture economic rents generated by frictions in both labor and product markets. The Wagner Act caused wages for production workers to increase and reduced wage inequality between production workers and management in highly concentrated industries.

This paper presents evidence that firms had labor market power during the early 1930s. Using plant-level data from the Census of Manufactures between 1929 and 1935, I construct a Herfindahl-Hirschman Index of local labor market concentration at the State-Economic-Area-by-industry-by-occupation level. I find that local labor market concentration has a negative relationship with wages which is consistent with labor market monopsony power. The results are robust to excluding local labor markets with one firm, excluding industries with local product markets, as well as the inclusion of industry characteristic, SEA, and occupational time trends. I find evidence that New Deal minimum wage policies weakened monopsony power. I also find suggestive evidence that high unemployment rates during 1930 reduced workers’ bargaining power. 

In April 1933, eight months prior to the end of Prohibition, states within the US gained the ability to legalize 3.2 percent alcohol beer. Proponents of legalization predicted that the brewer's dray would bring jobs along with beer. We estimate that legalization brought around 81,000 jobs between April and June of 1933, 60,000 of which were created in April, when the nation emerged from the trough of the Great Depression. This suggests that around 5.6 percent of nationwide non-agricultural spring employment gains, and around 15 percent of April job gains, were associated with beer legalization. Thus, this very early New Deal policy played an important supporting role in helping the nation turn the corner toward recovery.