T. Aldrich Finegan on 1955-57

During the baby-boom upswing of the Labor Force Participation Rate, after the 1970 recession, the Monthly Labor Review published an article and noted that its

Alternative projections of labor force growth suggest difficulties in returning to a 4.5-percent unemployment rate

T. Aldrich Finegan: "Labor force growth and the return to full employment" at JSTOR. Monthly Labor Review, February 1972

Looking back in time, Finegan writes (page 35):

Only one postwar recovery -- namely, 1954-55 -- was followed by a prolonged period of full employment when the country was not at war. And that period (1955-57) was very unusual in several respects. As table 3 reveals, real GNP rose only 1.5 percent a year -- less than half the average rate for the postwar period (3.7 percent). At the same time, growth in employment (1.2 percent per year) was abnormally high relative to the growth of real output but abnormally low for a full employment period. Evidently, only a rare combination of exceptionally small growth in output per worker and in the size of the labor force kept unemployment from rising during these two years.

He sees

• slow economic growth
• relatively high employment growth
• low labor productivity growth

That's half a confirmation of my answer to the question about the cause of the 1955-57 inflation, except Finegan draws no conclusions about inflation. His focus is the 1970s, the baby boom entering the workforce, and unemployment.

Matter of fact, a lot of the argument in the late 1950s and early '60s was about whether the 1955-57 inflation was cost-push or always-and-everywhere inflation. Because it was a hot topic, it was easy for people to see what they wanted to see in the data. Finegan, writing in 1971-72 and focused on unemployment rather than inflation, was able to evaluate the data with a cool head. I think so, anyway. I have more confidence in his evaluation of the '50s than I do even in Samuelson and Solow's. Hindsight, and all that.

 

Finegan sees full employment in 1955-57, but also unusually slow economic growth. That combination screams "low productivity!" 

We have already seen the low productivity and its consequences. But if Finegan's details are right, we should be able to see that low in a graph of real GDP relative to the number of workers in the economy. Come to think of it, yes, that is one way to measure productivity:

Graph #1: Real GDP per Worker, with HP showing low productivity
between the post-recession bounces of 1955 and 1959

I showed the data in Excel and put a Hodrick-Prescott on it to see the 1956-57 low. Then I set the background to "no fill", copied the plot window, and pasted it over the FRED graph, matching Excel's GDPC1/PAYEMS line with the line in the FRED graph to get the fit right. Where there's a will there's a way.

Unrelated: I thought Finegan's method of identifying "recoveries" and "expansions" was interesting and might be useful:

The historical periods were selected in the following way. In the case of previous recoveries, the criterion was that each period should begin with the quarter immediately preceding that in which real GNP resumed growing and should end with the quarter in which the unemployment rate stopped falling. Two exceptions to this rule were made ...

In the case of the three "other expansions," the criterion was a generally sustained growth of employment not accompanied by a pronounced change in the unemployment rate...