Between Policy Regimes: The Behavior of the Labor Market Between Schechter (1935) and Jones & Laughlin (1937)

Although New Deal policies generally had dramatic effects on labor and product markets, for the 22 months between two important Supreme Court rulings, the market was relatively free of intervention. In its Schechter decision, the Court ruled the National Industrial Recovery Act unconstitutional, throwing out its cartel, minimum wage, maximum hours, and collective bargaining provisions. However, in Jones & Laughlin the court surprisingly upheld the National Labor Relations Act, which brought back the guaranteed right to collective bargaining. A large wave of union activity followed the April 1937 ruling and average hourly earnings rose dramatically—an outcome that may generally be desirable but was counterproductive in the presence of high unemployment. This paper examines the importance of these two rulings via an empirical analysis of key economic variables. Evidence suggests that the NIRA was harmful and that significant improvement in the growth of both employment and output followed the Schechter decision.