Abstract
This paper examines the evolution of the National Industrial Recovery Act (NIRA) from its intellectual origins in the writings of Tugwell and Moulton, to the passage of the Act itself on June 17, 1933. What began as an attempt to address a structural problem, namely the widening gap between productivity and wages in manufacturing and mining, was transformed by President Franklin Roosevelt and Hugh Johnson into an economy-wide, multi-purpose policy instrument in the form of the NIRA and the subsequent President’s Reemployment Agreement (PRA). The multiple objectives and comprehensive breadth of the NIRA ultimately contributed to its demise. A simultaneous review of structural, cyclical and moral objectives, shows that the NIRA failed on all accounts. Specifically, firm and industry heterogeneity conspired to defeat all three objectives. Wages were increased in industries that had not been touched by electrification, contributing to lower aggregate employment and higher prices, thus providing an example of what not to do in the current debate over raising the minimum wage to $15.
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Notes
Besides the wage problem, Tugwell (1933) focused on a number of issues, including the challenges of vertical integration, especially the coordination problem, the role of skill in the serialization of production, and the role of competition, notably the theory of competition, in an era of rising concentration. The Industrial Discipline and the Governmental Arts should be seen as a critique of the second industrial revolution and its many challenges, organizational as well as macroeconomic.
This was also an integral part of the writings of Bellamy’s Progressives Movement, the Institutionalist Movement, and the Technocracy Movement.
One could argue that President Roosevelt’s interest in social justice had its origins in the Progressive Movement and one of its leaders, Theodore Roosevelt.
In fact, an additional dimension could be added, with firms that had adopted the new technology and experienced higher productivity, and those who had done so but who had not experienced higher productivity. This could be attributed to scale effects where productivity only rises if the firm operated at its new, higher technology.
In fact, Hugh Johnson defended the NIRA on the grounds that by fixing prices, the legislation helped smaller firms (firms that had not electrified), thus maintaining or even increasing competition.
As in Keynesian and Neo-Keynesian models, the demand side of the market is determinant.
This captures the Keynesian, non-market clearing aspect of the model as firms, owing to constraints in the product market, are forced to operate off of their labor demand curve.
The PRA, which was universal in scope, was used as a proxy fo the high wage provisions of the NIRA, specifically of the Codes of Fair Competition.
Sector 1 firms are operating off of their labor demand curves.
Employment in Sector 1 is not affected by the wage increase as firms are already off of their labor demand curve.
Taylor (2019) came to a similar conclusion, finding that its application was highly uneven across industries and sectors.
In a nutshell, the compliance crisis refers to the spring of 1934, when firms in general failed to comply with the conditions contained in the Codes of Fair Competition.
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Beaudreau, B.C. How Roosevelt Transformed the National Industrial Recovery Act. Int Adv Econ Res 25, 375–388 (2019). https://doi.org/10.1007/s11294-019-09753-4
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DOI: https://doi.org/10.1007/s11294-019-09753-4