Economic History

Was unemployment in the 1920s a national or a regional problem?

Bryony ROSE (2013), Durham University, Bachelor’s Degree in History.

Unemployment remained a permanent burden in British society between the wars.[1] Unemployment in the 1920’s was twice the pre war level; in 1923 an estimated 1.3 million people, 8.1% of the workforce were out of work and in 1929 an estimated 1.2 million, equating to 7.3% of the workforce were unemployed. Before assessment of the question the quality of the statistics available and definition of the ‘unemployed’ will receive attention. Keynes pioneered two explanations for the high levels of unemployment; of which aggregate demand was responsible in one and the money stringency necessitated by the overvaluation of the pound was put forward as an explanation in the other. Further explanations have arisen, placing the focus on the decline in the export industry and also that the problem of high unemployment benefit led to a notion of voluntary unemployment. There is no doubt that great regional and intra regional disparity existed in Britain in this period, therefore the problem of unemployment in the 1920’s was a multiple one which could not be alleviated by one sweeping remedy. As a result all explanations of unemployment that fail to take into account this regional disparity fall short. In 1913, due to the prosperity of heavy industry, Wales only suffered an average 2.4% unemployment rate, by 1929 this figure had increased to 18.1%. London conversely, stood at 5.8% in 1913 and a mere 4.7% unemployed in 1929, majorly due to the successful growth of the service sector. Therefore, although unemployment was indeed rife throughout Britain in this period and the large volume of unemployed resources in the depressed regions undoubtedly dampened the growth of the economy as a whole,[2] it was only as multiple regional concerns that it could have been alleviated. The decline of the British export industries acts as sufficient proof of the regional concern. Government policy will also be assessed as a prelude to conclusion as proof that their limited national approach was unsuccessful, because it failed to account for the undeniable regional nature of the unemployment problem in the 1920’s.

In the 1920’s and 1930’s the threat of unemployment hung over most workers in Britain irrespective of where they lived.[3] There were many different ways that individuals could be categorised as unemployed; the insured and non-insured unemployed, underemployed, those in irregular employment and due to the severity of the situation in the 1920’s, juvenile unemployment and long term unemployment was increasing. Prior to 1921 the ‘unemployed’ were those deemed surplus to industrial requirements for up to 15 weeks a year, who were not in dispute with their employer and whose unemployment could not be attributed to dismissal or to their own voluntary actions. In 1921, the cabinet condoned the extension of benefit to short-time workers.[4] From 1921 onwards National Insurance statistics were available to present information about the insured workers. According to the National Insurance statistics, an average of at least 10 per cent of the British insured workforce was unemployed in any year between 1921 and 1938. During these years the average annual level of unemployment was over 14 per cent of the insured workforce that is approximately one worker in seven.[5] Irrespective of the difficulties in obtaining effective data regarding unemployment and the different types of unemployed we can still no doubt pick out regional disparities.

Furthermore, there were different types of unemployment within this period and it is undeniably difficult to separate them. In the interwar period, Britain suffered from frictional, structural, cyclical, seasonal and personal types of unemployment. In addition many people moved throughout the period skewing precise figures of levels of unemployment in a given area. Whiteside and Gillespie argue that statistical representations of interwar unemployment are both partial and misleading.[6] Nonetheless for the purpose of this study definitional problems can be overlooked; as whichever statistical data or criteria of assessment is used the disparity between regions presents itself equally as starkly.

Britain was struggling economically in several spheres in this period. The strength of the pound sterling and the breakup of the international gold standard left Britain in a difficult position as her economy had previously relied heavily on international trade and it left British goods overpriced on international markets. Furthermore the British economic system appeared to have run into a vicious circle of low productivity growth and low wages which gave rise to severe difficulties in attempting to make changes in the industrial structure.[7] The wage market was inherently inflexible; the sharp rise in money wages and unit costs in this period no doubt played a part in the rising level of unemployment. A new economic approach was needed to solve these issues which would aid unemployment. Interwar unemployment is of critical importance because it touches on the validity of neoclassical beliefs in the fundamental stability of market relationships and in the rationality of economic actions.[8]

One of the chief characteristics of unemployment was the great disparity in its incidence both between regions and within regions.[9] This was caused by the regional distribution of industries. The big staple trades of the nineteenth century mining, textiles, shipbuilding, and mechanical engineering suffered sharp and permanent contractions in demand for their products, especially from overseas. They rapidly became inefficient, overmanned industries and shed labour rapidly. The annual rate of growth of output per man between 1920 and 1938 was only 2.5% in mining, 1.6% in textiles, 1.9% in shipbuilding, and 3.5% in iron and steel. In 1921 the volume of exports from the United Kingdom fell to 50% of the level of 1913; industrial production slumped, money wages fell and unemployment rose to the disturbing peak of nearly 17%.[10] In the first half of the 1920’s employment in these industries fell by more than one million. These five large groups accounted for around one-half of the insured unemployed in July 1929 and 60-70% of the labour force in these industries was from the northern regions. Where these industries had been predominant Wales, Northern England and Scotland suffered correspondingly high regional unemployment rates. Before 1914, the ‘north’ was the region of high growth, based on the prosperity of the export-oriented industries created by the industrial revolution. Unemployment was primarily a problem of the south, with its stagnant agricultural sector, and of London. Following the war, shifts in world trade caused a sudden drop in export demand, mainly affecting the staple industries of the north.[11] By 1929 Britain had only increased its volume of exports to 80% of the 1913 level. The table below highlights the differing levels of unemployment and their respective earnings, across several industries.

Average percentage rate of unemployment among insured workers and average annual earnings in 12 industrial sectors, 1924-38:

  Unemployment Rate

%

Earnings

£

1 Coal Mining 21.2 148.4
2 Cotton Textiles 20.8 85.4
3 Wool Textiles 16.7 96.3
4 Boots, shoes etc. Manufacture 15.1 109.2
5 Furniture manufacture and upholstery 11.8 120.3
6 Sawmilling and machined woodwork 13.4 128.9
7 Shipbuilding and repair 37.4 147.8
8 Brick, tile, pipe etc. Manufacture 12.5 135.2
9 Pottery and earthenware 23.7 91.3
10 Electrical engineering 7.8 115.7
11 Gas, water and electricity supply 8.0 191.0
12 Distributive trades 8.8 126.1
Mitchell and Deane (1962, p.67) for unemployment.

British staple industries also faced fierce competition from abroad as the world’s capacity to produce similar products at a cheaper level increased. Thus unemployment in these regions remained, as lower productivity caused a lower income per head and therefore stunted expanding industries. However, between 1921 and 1938 the distribution of the population around the regions of Britain changed considerably. The areas of rapid population growth were the regions of new industrial expansion: population in South east increased by 18.1% and the Midlands by 11.6%.[12] After 1920 rapid changes in technology and the need to cut costs also affected the labour market negatively. The economic deceleration of the old staples and the regions where they were concentrated was aggravated by linkage effects with other industries and regional multiplier effects. Coal export depreciation in the Northeast led to less shipbuilding and steel production. The drop in South Wales in exporting coal led to a decline in railway usage and steel production. Thus, whole regions slid into persistent depression.

            To successfully appreciate the extent of long term unemployment in the interwar years it is essential to assess how it progressed into the 1930’s. The table below highlights the changes in duration of unemployment, between regions.

Changes in duration of unemployment, June 1932 to February 1938:

  % applicants unemployed 12 months or more Average interrupted unemployment spell (weeks)
  June 1932 Feb 1938 June 1932 Feb 1938
London 4.4 5.8 16.2 15.5
South east 3.8 6.6 15.3 17.0
South west 8.8 8.6 19.7 20.0
Midlands 14.6 15.9 25.4 30.3
Northern W/E 19.6 25.0 31.0 49.3
Scotland 27.6 29.7 41.8 56.1
Wales 21.1 30.7 33.3 61.8
Beveridge ‘Analysis’, pp.8-9 (include temporary stopped and casual workers)

There is an overall trend across the regions of rising long term unemployment but the Northern regions remain consistently higher. This was undoubtedly associated with the adverse situation of the traditional export staples. In 1936 workers formerly employed in these industries accounted for 37 per cent of long-term unemployment, although only representing 19 per cent of employment among insured workers.[13] A further problem arose as there were very low re-employment possibilities for those from the staple industries. Long-term unemployed workers’ responses to hard times were undoubtedly affected by the operation of the benefit/allowance system, although this is not fully captured simply by looking at benefit to wage rate ratios.[14]

The Unemployment Insurance Act of 1920 increased weekly benefits by nearly 40 percent and extended coverage to more than 11 million workers. Benjamin and Kochin believe that the effect of the benefits caused a sense of voluntary employment. They therefore believe that regional and industrial concentrations of unemployment were due in large part to cross-sectional variations in wages and hence in benefit-to-wage ratios.[15] However, the data they use only takes into account cyclical unemployment and falls short of fully appreciating the nature of regional variation. The level of wages and the level of unemployment benefits undeniably influenced the level of unemployment. But it is a far cry from recognising the influence of these factors on unemployment to Benjamin and Kochin’s sweeping claim that the persistently high rate of unemployment in interwar Britain “was due in large part” to this factor alone.[16]

Politically, ministers believed that downturns in trade such as occurred during 1920-21 would, like pre war depressions, be of a relatively short duration; the most appropriate response, therefore, was to offer industry only such assistance as would enable it to overcome its temporary difficulties.[17] The government did recognise to some degree that the regions which had previously contained high levels of depressed export industry workers would need assistance and thus the Industrial Transfer Programme was born, designed to provide financial assistance to those with limited job prospects and assist migration. But its successes were limited, between 1920 and 1935 only about 4% of the workforce benefitted and moved from the depressed regions of the North to the South-east. The South-east made a net gain of about one million workers in this period. The government failed to make a big enough impact on the unemployment question because they were more focused on monetary and fiscal policies to protect the currency in the 1920’s, this kind of macro economics was not geared to work creation. Ultimately, the government were more prepared to subsidise the unemployed rather than subsidise jobs. This being said, easier monetary conditions and a lower exchange rate in the 1920’s would have done little to alleviate the problems in the staple industries; the mass cause of regional unemployment.[18] A much larger government intervention would have been required and a large scale shift in investment patterns and the existing economic structure was essential. The government’s failure to successfully ease the problem of unemployment in the 1920’s was due to their inadequate national and homogenous approach to a multiple and more importantly regional concern.

Neither the macroeconomic approaches of monetarists nor of Keynesian economists in recent years have satisfactorily explained the character and causation of the interwar long-term unemployment.[19] The classical economic approach by the government in the 1920’s ensured that necessary macro or regional policies were kept to a minimum. Unemployment in this period was the burden Britain had to pay for a previously prosperous industrial system based on exports rather than indigenous demand, and it seems clear that the burden fell most heavily, both then and subsequently, on those regions which created her prosperity.[20]

References:

Aldcroft, D. H., The Inter-war Economy: Britain 1919-1939 (London, 1970)

Aldcroft, D. H., The British Economy between the Wars (Oxford, 1983)

Benjamin, D.K., & Kochin, L.A., ‘Searching for an explanation of unemployment in interwar Britain’, Journal of Political Economy 1979 (cf 1982)

Booth, A.E., & Glynn, S., ‘Unemployment in the interwar period: A Multiple Concern’, Journal of Contemporary History 1975

Collins, M., ‘Unemployment in Interwar Britain: Still searching for an Explanation’, Journal of Political Economy 90 (1982)

Constantine, S., Unemployment in Britain between the Wars (London, 1980)

Crafts, N.F.R., ‘Long Term Unemployment in Britain in the 1930s’, Economic History Review 40 (1987)

Crafts, N.F.R., ‘Long Term Unemployment and the wage equation in Britain 1925-1939’, Economica 56 (1989)

Garside, W. R., British Unemployment 1919-1939: A Study in Public Policy (Cambridge, 1990)

Jordan, B., Mass Unemployment and the Future of Britain (Oxford, 1982)

Ormerod, P. A., & Worswick, G. D. N., ‘Unemployment in Interwar Britain’, Journal of Political Economy 90 (1982)

Southall, H.R., “The origins of the depressed areas: unemployment, growth and regional economic structure in Britain before 1914” Economic History Review 41 (1988)

Whiteside, N., & Gillespie, J. A., ‘Deconstructing unemployment: developments in Britain in the interwar years’, Economic History Review 4 (1991)

[1] S. Constantine., Unemployment in Britain between the Wars (London, 1980), p. 3

[2] D. H. Aldcroft., The Inter-war Economy: Britain 1919-1939 (London, 1970), p. 105

[3] Constantine, Unemployment in Britain, p. 17

[4] N. Whiteside., & J. A. Gillespie., ‘Deconstructing unemployment: developments in Britain in the interwar years’, Economic History Review 4 (1991), pp. 675-676

[5] A.E, Booth., & S. Glynn., ‘Unemployment in the interwar period: A Multiple Concern’, Journal of Contemporary History 1975, p. 612

[6] Whiteside & Gillespie, ‘Deconstructing Unemployment’, p. 666

[7] Booth & Glynn, ‘Unemployment: A Multiple Concern’, p.621

[8] M. Collins., ‘Unemployment in Interwar Britain: Still searching for an Explanation’, Journal of Political Economy 90 (1982), p. 371

[9] Aldcroft, Interwar Economy’, p. 134

[10] Constantine, Unemployment in Britain, p. 7

[11]H.R. Southall., “The origins of the depressed areas: unemployment, growth and regional economic structure in Britain before 1914” Economic History Review 41 (1988), p. 239

[12] Constantine, Unemployment in Britain, p. 21

[13] N.F.R. Crafts., ‘Long Term Unemployment in Britain in the 1930s’, Economic History Review 40 (1987), p. 422

[14] Crafts, ‘Long Term Unemployment’, p. 431

[15] Benjamin, D.K., & Kochin, L.A., ‘Searching for an explanation of unemployment in interwar Britain’, Journal of Political Economy 1979 (cf 1982), p. 473

[16] P. A. Ormerod., & G. D. N. Worswick., ‘Unemployment in Interwar Britain’, Journal of Political Economy 90 (1982), p. 408

[17] W. R. Garside., British Unemployment 1919-1939: A Study in Public Policy (Cambridge, 1990), p. 204

[18] D. H. Aldcroft., The British Economy between the Wars (Oxford, 1983), p. 139-141

[19]Crafts, ‘Long Term Unemployment’, p. 431

[20] Southall., “The origins of the depressed areas’, p. 257

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