Supply_and_Demand_of_Labor

The Supply and Demand of Labor During the Great Depression Christopher Scott Marthers XECO/212 August 24, 2012 Allen Simmonds The Supply and Demand of Labor During the Great Depression The Great Depression is most commonly believed to have started when the stock market crashed on October 27, 1929. In reality, the economy was in deep recession for about six months prior to the stock market crash. The effects of the Great depression on every market were substantial. When the stock market crashed, there were many people understandably scared about their savings. These people rushed to the bank and withdrew their money. This is what is commonly known as making a run on the bank. At the beginning of the 1920’s there were approximately twenty five thousand banks in the United States, by 1933 eleven thousand of those banks had failed. With the banks failing, there was less money in circulation. Less money in circulation meant people had less money to spend. People having less money to spend meant that businesses had less profits. Another thing that occurred during the same time period is commonly referred to as the Dust Bowl. Due to drought conditions, over farming, and soil erosion, farmers were not able to grow crops. Agriculture made up a large portion of the American economy at that time. By 1933 the unemployment rate had reached twenty five percent and the majority of the idle workforce were farmers. Farmers defaulting on their loans made up a large part of why the banks were failing. With the banks failing and little or no money being leant, business found it difficult to maintain profitability. This led to many businesses cutting down the size of their workforce. What this all led to is an abundance of unemployed people with very few jobs available. The business owners could not stay in business unless they lowered their employee’s wages or laid them off. Many of the workers could not afford to pay their bills on the lower wages. The supply of labor grew very quickly and the demand for labor dropped very quickly. This threw the entire system out of equilibrium. There was no way at that time to maintain the equilibrium between supply and demand of labor because businesses had too much product that they could not sell. People did not have any money to spend. References: http://www.thegreatdepressioncauses.com/banks.html