Accessible Unlicensed Requires Authentication Published by De Gruyter November 15, 2017

The Great Depression of Income: Historical Estimates of the Longer-Run Impact of Entering the Labor Market during a Recession

Jeremy Grant Moulton

Abstract

In this paper, I estimate the longer-run impact of variation in labor market entry conditions, driven by the Great Depression, on income and other labor outcomes in the 1940 Census. I use a regression discontinuity research design and find that 10 years after entry, less educated men entering the labor market at the beginning of the Great Depression earned 8.6 % less than those entering just one year prior. I find that the effect is larger (14.7 %) for those born in states more negatively affected by the Great Depression and close to zero for those born in states relatively less affected. The results indicate that the Great Depression had a persistent, negative impact on less-educated entrants that is not significantly different from that experienced by unlucky entrants of modern recessions.

JEL Classification: E32; J22; J23; J31; J60

Acknowledgments

I am grateful to Ann Stevens, Colin Cameron, Hilary Hoynes, Marianne Page, Gabriel Mathy, John Parman, Rowena Gray, Scott Wentland, Matthew Larsen, Christine Durrance, Steven Hemelt, Kenneth Snowden, and seminar participants at the Society of Labor Economists Annual Meeting, the University of North Carolina, Greensboro Economics Seminar, and the Bureau of Economic Analysis Brownbag Seminar for their helpful comments. Any remaining errors or omissions are my own.

Appendix

Figure 7: Education regression discontinuity.Source: 1940 US Census – Integrated Public Use Microdata Series (IPUMS 1 % sample).Note: This figure is a graphic depiction of the RD in Table 11 for years of education and a longer bandwidth for whether the individual left school at 8th-grade completion. I use the longer bandwidth for the 8th-grade outcome to show that the two samples deviate in 1908 and return to a relatively similar point in 1916.

Figure 7:

Education regression discontinuity.

Source: 1940 US Census – Integrated Public Use Microdata Series (IPUMS 1 % sample).

Note: This figure is a graphic depiction of the RD in Table 11 for years of education and a longer bandwidth for whether the individual left school at 8th-grade completion. I use the longer bandwidth for the 8th-grade outcome to show that the two samples deviate in 1908 and return to a relatively similar point in 1916.

Table 7:

Labor force participation among 14- and 15-year-olds in 1930.

Age 14 LFPAge 15 LFP
StateLegal Labor Entry AgeFull SampleNot in SchoolFull SampleNot in School
Alabama140.0480.2020.0980.328
Arizona140.0330.0630.1050.424
Arkansas140.0550.2080.1720.636
California150.0370.0950.0440.143
Colorado140.0470.3750.1090.558
Connecticut140.0440.3770.1340.633
Delaware140.0120.0000.1640.474
Florida140.0800.1710.1300.483
Georgia140.1010.3730.2170.694
Idaho140.0160.0000.0620.333
Illinois140.0260.1450.0540.276
Indiana140.0280.0530.0550.230
Iowa140.0440.0470.0820.366
Kansas140.0530.2000.0790.289
Kentucky140.0330.1670.0880.348
Louisiana140.0820.4150.1870.548
Maine150.0640.3140.0670.234
Maryland140.0480.3390.1690.623
Massachusetts140.0320.2780.1090.569
Michigan150.0250.1720.0510.276
Minnesota140.0220.0970.0390.250
Mississippi140.0690.2170.1140.387
Missouri140.0490.3010.1380.506
Montana160.0780.0910.1120.267
Nebraska140.0350.0450.0680.233
Nevada140.0380.0000.0910.143
New Hampshire140.0190.2730.0370.313
New Jersey140.0330.1910.1010.527
New Mexico140.0750.2310.1180.650
New York140.0240.1590.1040.477
North Carolina140.0910.4270.2150.581
North Dakota140.0190.1430.0540.500
Ohio160.0290.1080.0650.306
Oklahoma140.0450.3270.1150.341
Oregon140.0720.2940.1020.414
Pennsylvania140.0250.2350.0810.427
Rhode Island150.0110.0910.1830.667
South Carolina140.1920.5430.3370.780
South Dakota140.0170.1590.0460.333
Tennessee140.0440.3690.1030.488
Texas150.0820.0000.1490.490
Utah140.0370.0000.1050.296
Vermont140.0080.3090.0780.438
Virginia140.0650.0870.1320.387
Washington140.0440.1610.0810.595
West Virginia140.0210.0880.0650.340
Wisconsin140.0200.0000.0420.168
Wyoming140.0000.0630.0630.143

  1. Source: 1930 US Census – Integrated Public Use Microdata Series (IPUMS 1 % and 5 % samples) and Goldin and Katz (2008) data appendix.

  2. Notes: The sample is composed of white men not living on a farm or in group quarters. The table includes the minimum age for labor entry and the proportion of 14- and 15-year-olds from each state that were in the labor force in 1930. Results are provided for the full sample and those not in school.

Table 8:

Effect of legal labor entry age laws on LFP of 14-year-olds.

Full SampleOut of School
LFPLFP
(1)(2)
15 or 16 Labor Entry Age0.003−0.007
(0.009)(0.066)
Constant0.037***0.230***
(0.004)(0.021)
N44,1952,621

  1. Source: 1930 US Census – Integrated Public Use Microdata Series (IPUMS 1 % and 5 % samples) and Goldin and Katz (2008) data appendix.

  2. Notes: The sample is composed of white men, 14-years old, not living on a farm or in group quarters. The model includes an indicator variable for whether their current state of residence had a 15- or 16-year-old minimum labor entry age. Robust standard errors clustered on the state are included (in parenthesis). *, **, and *** indicate the statistical significance at 10 %, 5 %, and 1 % level, respectively.

Table 9:

Regression discontinuity using labor laws.

Log (Income)LFPWeeks WorkedHours WorkedWPA Worker
Full Sample(1)(2)(3)(4)(5)
1(Yearborn ≥ C)−0.034***0.003−0.508**−0.1950.001
(0.012)(0.004)(0.236)(0.215)(0.004)
N51,99861,65151,99842,34751,998
8th Grade(6)(7)(8)(9)(10)
1(Yearborn ≥ C)−0.063**0.013−0.9380.2460.014
(0.029)(0.011)(0.591)(0.558)(0.011)
N9,04310,6669,0436,9079,043
8th-Grade High Shock(11)(12)(13)(14)(15)
1(Yearborn ≥ C)−0.101**0.006−1.3430.1360.039**
(0.043)(0.017)(0.861)(0.819)(0.016)
N4,2895,1274,2893,2524,289
8th-Grade Low Shock(16)(17)(18)(19)(20)
1(Yearborn ≥ C)−0.0250.018−0.4460.385−0.010
(0.040)(0.015)(0.815)(0.761)(0.014)
N4,7545,5394,7543,6554,754

  1. Source: 1940 US Census – Integrated Public Use Microdata Series (IPUMS 1 % sample.

  2. Notes: The sample is composed of white men not born 1911–1920, living on a farm or in group quarters. The model is an RD using a cutoff that corresponds to the birth year for those turning their state’s minimum legal entry age at the onset of the Great Depression. Trend, post-trend, and birth state fixed effects are included, but not reported. Results are provided for the full sample, 8th-grade sample, and the high- and low-shock 8th-grade samples. Huber-White robust standard errors (in parenthesis) are reported. *, **, and *** indicate the statistical significance at 10 %, 5 %, and 1 % level, respectively.

Table 10:

Regression discontinuity by education.

Education Level:6th7th8th9th10th11th12th
Log (Income)Log (Income)Log (Income)Log (Income)Log (Income)Log (Income)Log (Income)
(1)(2)(3)(4)(5)(6)(7)
Panel A: Labor Market Entry Age Determined by Education
1(BirthYear ≥ 1930 – Ed – 6)0.015−0.050−0.086***0.014−0.0340.0370.001
(0.085)(0.060)(0.029)(0.041)(0.034)(0.043)(0.020)
BirthYear – (1930 – Ed – 6)−0.057***−0.060***−0.052***−0.071***−0.057***−0.054***−0.046***
(0.018)(0.013)(0.006)(0.009)(0.008)(0.010)(0.005)
1(BirthYear ≥ 1930 – Ed – 6) × [BirthYear – (1930 – Ed – 6)]−0.100***−0.074***−0.068***−0.061***−0.045***−0.030**−0.031***
(0.031)(0.022)(0.011)(0.015)(0.012)(0.015)(0.007)
N1,2642,4619,0434,3995,9903,97614,972
(8)(9)(10)(11)(12)(13)(14)
Panel B: Labor Market Entry at Age 14
1(BirthYear ≥ 1916)0.014−0.081−0.086***−0.047−0.043−0.050−0.004
(0.075)(0.056)(0.029)(0.042)(0.037)(0.042)(0.020)
BirthYear – 1916−0.056***−0.040***−0.052***−0.066***−0.068***−0.045***−0.064***
(0.017)(0.013)(0.006)(0.010)(0.008)(0.010)(0.005)
1(BirthYear ≥ 1916) × (BirthYear – 1916)−0.034−0.074***−0.068***−0.070***−0.068***−0.115***−0.128***
(0.027)(0.020)(0.011)(0.016)(0.013)(0.016)(0.007)
N1,5042,6769,0434,2725,7553,92116,991

  1. Source: 1940 US Census – Integrated Public Use Microdata Series (IPUMS 1 % sample.

  2. Notes: The sample is composed of white men not living on a farm or in group quarters, born in a 10 year window around the cutoff determined by terminal education in the top panel and 1911–1920 in the bottom panel. The model is an RD using a cutoff equal to the birth year the individual would have entered the labor market at the onset of the Great Depression based on their education (birth year + education + 6) in the top panel and the year they would have been 14 (1916) in the bottom panel. Birth state fixed effects are included, but not reported. Results are reported for different levels of terminal education. Huber-White robust standard errors (in parenthesis) are reported. *, **, and *** indicate the statistical significance at 10 %, 5 %, and 1 % level, respectively.

Table 11:

Education regression discontinuity.

Full SampleFull SampleHigh ShockLow Shock
EducationEducationEducationEducation
(1)(2)(3)(4)
1(BirthYear ≥ 1916)0.004−0.3010.049−0.044
(0.046)(0.310)(0.063)(0.068)
1(BirthYear ≥ 1916) × Employment Index0.004
(0.004)
BirthYear – 19160.053***0.053***0.037**0.070***
(0.012)(0.012)(0.016)(0.017)
1(BirthYear ≥ 1916) × (BirthYear – 1916)−0.202***−0.202***−0.202***−0.204***
(0.016)(0.016)(0.023)(0.024)
N51,99851,99826,55925,439
8th Grade8th Grade8th Grade8th Grade
(5)(6)(7)(8)
1(BirthYear ≥ 1916)−0.012*0.053−0.001−0.024**
(0.006)(0.041)(0.009)(0.010)
1(BirthYear ≥ 1916) × Employment Index−0.001
(0.000)
BirthYear – 1916−0.011***−0.011***−0.012***−0.010***
(0.002)(0.002)(0.002)(0.002)
1(BirthYear ≥ 1916) × (BirthYear – 1916)0.011***0.011***0.012***0.010***
(0.002)(0.002)(0.003)(0.003)
N51,99851,99826,55925,439

  1. Source: 1940 US Census – Integrated Public Use Microdata Series (IPUMS 1 % sample) and Wallis (1989, Table 8) employment index.

  2. Notes: The sample is composed of white men born 1911–1920 not living on a farm or in group quarters. The model is an RD using a 1916 cutoff. The model also includes an interaction of the Wallis employment index (averaged over 1930–1934) with the discontinuity variable to determine if the treatment varies with the severity of the Great Depression in the observation’s birth state in columns 2 and 6. Birth state fixed effects are included, but not reported. Huber-White robust standard errors (in parenthesis) are reported. *, **, and *** indicate the statistical significance at 10 %, 5 %, and 1 % level, respectively.

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Published Online: 2017-11-15

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