Wherein the Sandwichman documents the appalling intellectual vacuity of Lee E. Ohanian's "What -- or Who -- Started the Great Depression?" so the referees at the Journal of Economic Theory don't have to. Not that they would anyway.
First, let's cut to the chase. Ohanian summarizes his operative theory on pages 48 and 49. I will quote the section in full at the bottom of this post. For now, the two key sentences are "Any monetary explanation of the Depression requires a theory of a very large and very protracted monetary non-neutrality.... The non-neutrality is quantitatively large in the Hoover economy because Hoover's wage maintenance and work-sharing program reduces steady state hours and capital stocks [emphasis added]."
So what is the mechanism by which Hoover's program reduced capital stocks? For the answer to that, we take you back to pages 28-29 to an explanatory footnote about Ohanian's specified model. Again, I will present the full footnote at the bottom, but the key phrases are: "Capital input in this model is variable, and is equal to the capital stock scaled by the length of the workweek, or hours per worker." and "This treatment is also reasonable because there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek fixed, also reduces output per hour."
The evidence Ohanian refers to is a 2001 article by Lanoie, Raymond and Shearer (hereafter Lanoie), "Work sharing and productivity: Evidence from firm level data." It is fair to point out that Lanoie is the only article in the paper's reference list dealing with the productivity effects of work-sharing. The article in question deals with a single, year-long "experiment" at a Canadian telecommunications firm in the early 1990s.
On first impression, the relevance to Hoover and the Great Depression of this single 1990s example may seem remote. But on closer inspection, it becomes laughable. The program was not simply a work-sharing arrangement. It was also a change in schedule to a nine-hour day precipitously imposed by management. Furthermore, the productivity impacts were found to be task specific. To generalize from this particular example to work sharing during the Hoover administration strains credulity, let alone plausibility. But here, in the authors' own words, are the peculiarities of the Canadian experiment that would be enough to disqualify it as in any way typical or representative of the Hoover-era experience:
These results suggest that the impact of work sharing on productivity is 'task specific' and that longer operations (both types of installations), for which the coordination cost is likely to be higher, are broadly more affected. As discussed earlier, another possible contributing factor to the decrease in productivity is the change in the work schedule that was introduced along with the work sharing programme. Namely that workers changed from working 8 hours a day for 5 days a week to working 9 hours a day for 4 days a week. It is possible that the extra hour tacked on to the end of the day was much less productive than the hours worked on the fifth day of the week. Unfortunately, without information on daily production, the data set does not permit identification of such effects. Certain officials also mentioned that managers were not well prepared to operate in this work sharing environment (the whole operation was implemented with a very short notice), and that coordination problems occurred not only between technicians, but also between technicians and dispatchers. One further possibility is that worker morale may have been negatively affected by the work sharing programme. Given that technicians were not given a choice of whether or not to participate in the programme whereas other types of workers were, technicians may have felt they were being unfairly treated (Akerlof, 1982). The fact that absenteeism increased following the introduction of the programme lends support to this interpretation.To reiterate:
- impact on productivity was task specific;
- change in the work schedule was introduced along with work sharing; from 8 hours a day for 5 days a week to 9 hours a day for 4 days a week;
- managers were not well prepared to operate in this work sharing environment (the whole operation was implemented with a very short notice;
- technicians were not given a choice to participate (other employees were); morale may have been negatively affected.
Summary of Ohanian's theory, pages 48-49:
Any monetary explanation of the Depression requires a theory of a very large and very protracted monetary non-neutrality. Such a theory has been elusive because the Depression is so much larger than any other downturn, and because explaining the persistence of such a large non-neutrality requires in turn a theory for why the normal economic forces that ultimately undo monetary non-neutrality were grossly absent in this episode. That is, if the Depression is largely the result of monetary forces, then the size and the duration of the monetary non-neutrality were remarkably well outside estimates from any other period.Footnote, page 28-29:
This paper provides such a theory for a large and protracted monetary non-neutrality. The non-neutrality is quantitatively large in the Hoover economy because Hoover's wage maintenance and work-sharing program reduces steady state hours and capital stocks. The non-neutrality persists in this model because it is a transition from a non-distorted steady state to the Hoover distorted steady state.
Capital input in this model is variable, and is equal to the capital stock scaled by the length of the workweek, or hours per worker. In the model, utilization falls in manufacturing, which is consistent with actual manufacturing utilization during the Depression. It is worth pointing out two issues about tieing [sic] the decline in utilization to hours per worker. One is that some of the decline in utilization was due to plant closings, rather than a shorter workweek across all plants. Another is that some worksharing was such that workers were employed for fewer days, but the plant could have had the same workweek length. I am unaware of data that can provide any type of detail on these distinctions, however, so I will treat the model as a parsimonious tool for capturing low capital input during the Depression, as it will allow the model to be consistent with actual manufacturing output per hour. This treatment is also reasonable because there is evidence that worksharing that reduces the number of days an employee works, even keeping the length of the workweek fixed, also reduces output per hour (see Lanoie, Raymond, and Shearer).