Working Papers

Unemployment and Underemployment In Historical Perspective


The evolution of modern labor markets currently may be the single most popular research topic among economic historians, almost certainly in North America, quite probably in other parts of the world. And unemployment is, of course, the single most controversial aspect of labor market behavior.

The problems involved are fundamentally historical. Labor market outcomes depend on institutions and conventions which have evolved in a fundamentally historical way. The emergence of implicit contracts and internal labor markets was a response to new industrial technologies and organizational forms which attached a growing premium to firm-specific skills and long-term employment relationships (Jacoby, 1985). Together with the rise of organized labor in the final decades of the 19th century, these arrangements transformed the manner in which labor markets responded to disturbances (Eichengreen, 1987a; Friedman, 1988). The realization that the modern labor market produced by these innovations did not function perfectly and could give rise to various problems, not the least of which was involuntary unemployment, prompted public intervention. The new institutional arrangements that resulted — poor relief, unemployment insurance, and minimum wages prominent among them — further altered the operation of the market.

Consequently, the structure and performance of labor markets can only be understood historically. They are the product of imperatives and events in the distant past. Equally, the effects of a specific set of labor market structures can only be identified historically. To isolate the impact of a particular labor market arrangement, one must compare the market in which it is embedded with another in which that function is absent or organized differently. The obvious way of doing so is by comparing labor markets over time. Thus, the study of unemployment and labor market dynamics is a fundamentally historical enterprise.

Recent research has revolved around three topics: the changing structure of labor markets, the incidence and effects of unemployment, and the policy response. I consider them in turn, focusing largely but not exclusively on contributions to this volume.