Historical Example of Labor Supply and Demand: the Great Depression

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Checkpoint: Historical Example of Labor Supply and Demand
Aaron Rhome
XECO/212
11/17/12
Jim Vernon

Checkpoint: Historical Example of Labor Supply and Demand The era of American history known as the Great Depression represents the bleakest chapter in the history of the economy United States. A series of events culminated into the largest economic downturn in known history, with no end in sight. Following the stock market crash on September 3, 1929 millions of Americans rushed their banks to withdrawal their funds before their bank collapsed. Their actions caused many more banks to fail and limited the availability of credit to businesses. This lack of credit combined with reduced consumer spending lowered the demand for labor and unemployment skyrocketed as a result.

At the outset of the depression domestic and foreign demand for automobiles had turned American auto manufacturing was the biggest industry in the world and was the driving force behind the U.S. economy (McCarthy, 2012). As thousands of banks and other companies closed or slowed production unemployment levels skyrocketed to a height of 25% by 1933 (Croft Communications, 2012). The increased supply of available labor coincided with a decrease in demand for automobiles resulting in a labor equilibrium that required fewer workers and lowered wages. According to McCarty (2012), “During the early 1930s, hundreds of thousands of workers were laid off or had their hours and wages cut. Older workers could not keep up with the increase in production speed expected from fewer workers.” (para.1). The crash of the stock market removed billions of dollars of wealth from the economy and lowered demand of products and services as a result. With no demand for their products, employers had to reduce wages to reach equilibrium, or…...

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